How businesses are preparing for the Corporate Tax: Potential Changes and the steps

Dubai: The UAE Corporate Tax (CT) regime was first announced by the Ministry of Finance on 31 January 2022, with a planned introduction date of 1 June 2023. As the first direct tax to be levied in the country, businesses and taxable individuals have had to assess how they have been impacted and address these issues.

The Corporate Tax rate in the UAE is 9%, which is the lowest in the GCC and one of the lowest globally. After identifying where you are as a business in terms of exposure, a key consideration is whether you can benefit from the Free Zone regime, which offers a 0% tax rate. 

If a business meets the criteria for being a Qualifying Free Zone entity, it might want to think about restructuring to take advantage of this. The Ministry of Finance has confirmed that existing and new Free Zone companies can use this tax system. However, it is important that businesses still consider other aspects of the Corporate Tax legislation, such as the General Anti-Abuse Rules (GAAR). This in its simplest form prevents businesses from undertaking a transaction that is not for commercial reasons and is purely to gain a Corporate Tax advantage.

Some businesses might not benefit from the Free Zone setup due to their business model, for example, if their income comes from Excluded Activities. These businesses should explore other available reliefs, such as Small Business Relief, and make internal changes to comply with the new regulations.

To adapt, many businesses might need to adjust their financial processes to accurately classify their income and spending. This is particularly important when dealing with expenses that might not be fully deductible for tax purposes. Such entities will also need to register with the Federal Tax Authority and should consider preparing a practice tax return to ensure they are fully prepared for the first taxable period.

At Sanctuary, our team of tax experts is dedicated to helping clients with their unique needs. We offer tailored reports, suggestions for restructuring, changes to financial processes, and various support services. Our goal is to make sure our clients are well-prepared and have laid down the right foundation for the introduction of UAE Corporate Tax.

This article is contributed by Nathan Patterson, Head of UAE Corporate Tax and Finance. Nathan Patterson is the Head of UAE Corporate Tax and Finance at Sanctuary

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