Guide on Corporate Tax Penalties in Uae

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Complete Guide on Corporate Tax Penalties in Uae

What Is Corporate Tax?

Corporate Tax Penalties in Uae: The term “corporate tax,” sometimes known as “corporation tax” or “business tax,” refers to a type of direct tax levied against the profits or assets of corporations or other similar legal entities. Many countries all over the world have a corporate tax regime by their taxation authorities. Along with many other gulf countries, UAE has also now announced to start a corporate tax regime starting from 1st June 2023. Read more about corporate tax UAE .

What Are the Objectives of Corporate Tax in Uae?

Every financial scheme proposed in any country has certain aims and goals which eventually benefit the country’s economic standing. Similarly, the corporate tax regime also has some objective which are stated as below:

  • To create a concrete position of UAE as globe’s leading destination for trade and investment
  • To speed up the development and infrastructural changes in the country to achieve the strategic goals of the country even faster
  • To reiterate country’s dedication to stopping unfair tax practices and fulfilling global norms for tax transparency

What Is the Actual Scope of Corporate Tax Uae?

A scope for any kind of scheme or program introduced, refers to the parties, individuals and entities who shall be coming under the effect of the proposed scheme. Here are the list of parties, entities and individuals upon which the effect of corporate tax will be applied:

Businesses and individuals in UAE who operate under a commercial license will be subjected to corporate tax in UAE.

  • The free zone businesses will also be applicable for corporate tax in UAE. However, the UAE CT regime will keep honoring the CT incentives that are now given to free zone enterprises who adhere to all legal criteria and don’t have offices on the country’s mainland.
  • Only foreign organizations and people who regularly or continuously conduct trade or commerce in the UAE.
  • Operations from the banking sector in UAE
  • Other businesses such as construction businesses, real estate management, development corporations or any brokerage agencies will also be under the corporate tax regime effect.

Who Is Exempted From the Corporate Tax Regime??

The corporate tax will not apply to all businesses in UAE. There is certainly some conditions and criteria for being eligible to pay for the corporate tax in UAE. There are also some exemptions which are as follows:

  • Businesses which are involved in the extraction of natural resources are excluded from CT since they will continue to be subject to the present corporate taxation at the Emirate level.
  • A UAE company’s dividends and capital gains from its eligible share capital are excluded from the corporate tax system.
  • If the prerequisites are satisfied, valid intra-group transactions and reorganizations will not be subject to Corporate Tax regime in UAE.

What Are the Rates Defined for Corporate Tax in Uae?

The Ministry of Finance has proposed three different categories for the corporate tax rate imposition. The categories are based upon businesses that:

Have taxable net income up to AED 375,000 – These businesses and corporations will have to pay 0% as corporate tax to UAE’s Federal Taxation Authority

Have taxable net income above AED 375,000 – These businesses and corporations will have to pay 9% as corporate tax to UAE’s Federal taxation Authority

Are Large Multinationals – There is a different criteria of tax rate for this category which is not clearly specified yet by the Ministry of Finance in Dubai but it refers to the ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting Project.

How Will the Corporate Tax Be Administered in Uae and What Will Be Possible Penalties Related to It?

Although details on the administration of corporate tax in UAE are yet to be elaborated and roll out by the Ministry of Finance, they have still given some basic information on the Corporate Tax FAQ page on their official website. The corporate tax return will need to be file only once in a fiscal year which is typically a tenure of one year. 

As per the announcement of Ministry of Finance, the first fiscal year for corporate tax will be from 1st June 2023 till 30th June 2024. It is also forecasted that the corporate tax will be filed electronically like other tax filings in UAE. This is practiced to minimize the risk of calculation and trace any sort of fraudulent activity during the course of tax filing. In case any business plans intends to apply for paying corporate tax in advance, it will not be entertained. The businesses will have to pay for the corporate tax within the timeline provided by the Federal Taxation Authority.

As far as the penalties for corporate tax are concerned, there will be certainly some rules and regulations just like other tax return filings such as VAT etc. which will draw the businesses towards compliance with the Corporate Tax regime. However for now, these penalties and circumstances that may be considered as violations are not yet disclosed by the Ministry of Finance. 

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