How to prepare Accounts under UAE Corporate Tax Laws

With the implementation of Corporate tax in the UAE this year, businesses will need to modify their company operations, corporate structure, and accounting systems promptly, since it will first apply to those with fiscal years beginning on or after 1 June 2023. Businesses having a fiscal year that runs from January to December have a bit more time to prepare, since their first reportable year will be 2024, and they must file their corporation tax return by September 2025. Under the UAE corporate tax laws, the final amount of Tax shall be paid to the Federal Tax Authority (FTA) of UAE, with deductions related to foreign taxes imposed on overall income.

Which reports should be prioritized?

The UAE Corporate Tax (CT)  system suggests that the accounting policy is significant in preparation of a company’s financial statements that will be used to calculate taxable income.

The business financial reports, accounting records, and financial statements will be critical for such evaluation. Profits from the selling of goods or services, commissions and business rentals etc. are all considered taxable income by businesses.

You can take help from professionals like Aristotle Tax Consultancy for all the calculations and reports. Our experts are well-versed in handling all data, transactions, accounting books, inventories, financial reports, and asset management for planning, budgeting, reporting, auditing, or tax purposes.

How to conduct detailed analysis ahead of new tax rules implications?

As part of this research, and in order to be ready for the corporation tax and transfer pricing regimes, firms should ideally:

• determine the modifications that must be made to the company model and corporate structure in order to reduce the fiscal load and administrative costs
• create a strong accounting technology system in accordance with tax regulations
• determine the connected parties, analyze the current agreements/transfer pricing procedures, and have good transfer price paperwork on hand.
• examine the application of corporation tax on income streams, investigate any exemption requirements, and determine if their UAE firms qualify for such exemption

Register the company for corporate tax reasons through the Federal Tax Authority – in general, all enterprises on whom CT is applicable should register because there is no minimum registration requirement.

The Ministry of Finance’s way of distributing messages has been consistent. Its goal is to guarantee that there are no surprises in corporation tax. It will be consistent with best international practices. It will strive to decrease uncertainty. It will make every effort to make engagement with the process as easy and pleasant as possible.

Important factors to consider while preparing accounts under UAE Corporate Tax Laws

1- Corporate tax liability calculations

CT is charged on yearly taxable income determined after deductions, reliefs, losses, and other modifications per UAE CT law. The tax will be charged as follows:

• 0% on taxable income up to AED 375,000, and
• 9% on taxable income over AED 375,000. 

2- Withholding tax

According to UAE CT legislation, withholding tax is levied on UAE-sourced income earned by a non-resident person on such types of income. However, the mandated rate is zero, as determined by the Cabinet. Withholding tax may also be levied on any other income designated by the cabinet. 

3- Foreign tax credit

The UAE CT allows for foreign tax credit where revenue from abroad activities is combined for UAE CT purposes and UAE CT is charged on the same. The amount of abroad Tax Credit available will be restricted to the amount of tax payable under the UAE CT on such relevant revenue from abroad activities.

4- Refunds & payments after corporate tax

The UAE CT Tax liability must be settled within 9 months after the end of the relevant tax period. A Taxable Person may seek a refund from the Authority if the CT paid exceeds the tax owed or the withholding tax credit available for a relevant tax period exceeds the CT payable.

5- Transfer pricing data

The Authority may require a Taxable Person to file a disclosure comprising information about transactions and agreements with Related Parties and Connected Persons in the manner stipulated by the Authority together with the Tax return. Furthermore, the taxable person must keep a master file and a local file in the form defined by the Authority, and both must be given to the Authority within 30 days of the Authority’s request.

6- Necessary assessments

According to the UAE CT, a Person may be subject to a Corporate Tax Assessment in compliance with the Tax Procedure Law and related recommendations. The necessary penalties and fines will be determined under the Tax Procedure Law.

Categorizing taxable persons under UAE corporate tax laws.

The UAE C T is levied on Taxable Persons who are classified as Resident or Non-Resident. The categories of Resident and Non-Resident Persons subject to Corporate Tax are summarized as follows:

1- Person in Residence:

• A juridical person that is incorporated or otherwise established or recognized under the applicable legislation in the UAE, including a Free Zone Person;
• A juridical person that is incorporated or otherwise established or recognized under the applicable legislation in a foreign jurisdiction that is effectively managed and controlled in the UAE;
• A natural person that conducts Business or Business Activity in the UAE;
• Any other person as determined by the applicable legislation. 

2- Non-Resident Person:

• has a permanent establishment in the UAE;
• derives state-sourced income;
• has a nexus in the UAE is subject to UAE CT.

Note: If a taxpayer is a tax group made up of two or more UAE tax resident firms, the parent company must combine the financial statements of each subsidiary company and exclude transactions between the companies in the group. Each subsidiary company’s financial statements must use the same fiscal year and accounting rules. Exemption of AED 375,000 Taxable Profit shall be applicable for the Tax Group as a whole.

Implications of new UAE tax regimes according to revenue threshold

The Minister ruled in Ministerial Decision 82/2023, dated 10 April 2023, that the following types of people are obliged to submit and maintain audited financial accounts under Article 54 of the CT:

1. Taxable Person with Revenue in excess of AED 50 million during the relevant Tax Period (Revenue is defined as gross income earned during the Tax Period);
2. Person Eligible for a Free Zone (A Qualifying Free Zone Person is an entity incorporated, established, or registered in a Free Zone that: maintains adequate substance in the UAE; derives Qualifying Income (any income subject to a 0% (zero percent) Corporate Tax rate); has not elected to be taxed at the standard Corporate Tax rates; and complies with Article 34’s Arm’s Length Principles and Article 55’s Transfer Pricing Documentation provisions.

According to this Ministerial Decision, all Taxable Persons who earn more than AED 50 million in gross income during the relevant Tax Period, as well as any Qualifying Free Zone Person(s) (regardless of revenue), are required to file and maintain audited financial accounts.

How Aristotle Tax Consultancy Can Help?

Companies should also consider generating and retaining audited financial accounts for the fiscal year prior to the implementation of corporation tax. This will make it easier for them to conduct a formal examination of their initial balance sheet for company tax reasons.

Aristotle Tax Consultancy team of experienced accountants and tax specialists can assist taxpayers in compiling financial statements and calculating taxable income in accordance with corporate tax legislation rules.