UAE Corporate Tax Puzzle: When it comes to corporate tax in the UAE, the devil is in the details or rather, the words. In the world of commerce, words can be astoundingly flexible, and the fewer you use, the more room there is for ambiguity and questions.
Innovation is the lifeblood of business, essential for competition and survival. It leads to a plethora of product and service options for customers. But it also leaves business owners grappling with how to fit their niche into a narrow language.
In exploring this intricate topic, I collaborated with Dr. Peter Wilson, an international tax expert from PB First.
Today, we embark on a journey, starting with ships, to unravel the complexities of corporate tax qualification in the UAE. Manufacturing and logistics are two sectors that seem to qualify, and shipping can be part of the logistics supply chain, moving goods from one place to another. It’s logical to assume that ownership, management, and operation of ships supporting this chain would also be covered.
But what about pleasure cruises? With abundant coastline, the UAE offers various leisure excursions to tourists and residents. Would it matter if these cruises left UAE territorial waters? Could they blur the lines between cargo and leisure, like VAT? Fortunately, the de minims rule comes to the rescue. It allows for non-qualifying income, provided it’s less than 5% of turnover or under Dh5 million ($1.36 million) of invoicing, without jeopardizing your non-taxable status.
However, this rule might unintentionally introduce structural inefficiencies into the marketplace. And let’s not forget the ever-present force majeure clauses, which could turn a business from non-taxable to taxable due to unforeseen circumstances.
Also Read: UAW Grip On Labor Deal Hostage: Sparks Fly Over Battery Plant Destiny
Moving from ships to planes, we encounter complexities similar to those in VAT law. In-country and international movements are treated differently, and a continuous scheduled journey is yet another dimension. When cargo is flown across the country, how does it impact corporate tax treatment?
With much explanatory law still pending, businesses are left in a state of uncertainty. While small firms can utilize small business relief or the tax-free allowance, larger entities face significant implications. The lack of clear tax laws might lead to an increase in UAE juridical entities as businesses try to separate trading verticals due to the lack of clarity.
Time is running out, especially for entities with financial years starting in January. In this rapidly changing landscape, there’s a pressing need for clarity and guidance.
The last leg of our journey takes us to immovable property in a free zone. Leasing a building to another legal entity for a business purpose generally doesn’t attract corporate tax. But what if the building was initially residential? Does the original intent of the building drive its tax treatment?
Assuming a change in usage is allowed, what happens during a period of non-occupancy? Is there a de minims usage test, similar to the revenue threshold within an annual reporting period?
With these complex scenarios, clear regulations are essential. Clauses in lease agreements may offer a solution, ensuring that parties agree to a seamless transition of tax responsibility upon a tenant’s exit.
In the ever-evolving landscape of corporate tax in the UAE, businesses need more than words they need clear, comprehensive guidance to navigate the intricacies of taxation.
Our Reader’s Queries
How is corporate tax calculated in UAE?
In the UAE, corporate tax is determined by calculating 9% of the net profit displayed in a company’s financial statements. This calculation takes into account all applicable deductions and excludes any exempted income. Additionally, any foreign taxes paid can be deducted from the profit shown in the financial statement.
What is the new tax law in UAE 2023?
Starting in 2023, businesses in the UAE that generate over 375,000 AED (approximately USD $100,000) will be subject to a 9% corporate tax on their profits (revenue minus expenses). This new tax policy aims to increase government revenue and promote economic growth in the region. It is important for businesses to prepare for this change and ensure compliance with the new regulations.
What is the tax structure of the UAE?
Individuals in the UAE are not subject to income tax. However, a 5% value added tax is imposed on the purchase of goods and services, which is applied at every stage of the supply chain and ultimately paid by the end consumer.
What is the corporate tax limit in the UAE?
If your annual taxable profits are less than AED 375,000, you won’t have to pay any taxes on them. However, if your profits exceed this amount, you’ll be subject to a 9% tax rate. It’s important to keep this in mind when calculating your taxes and budgeting for the year.