Corporate Tax Obligations for UAE Business Branches
The UAE, with its business-friendly environment, has always been a first preference for entrepreneurs and businesses. But the advent of the UAE Corporate Tax, which will be effective from June 1, 2023, will introduce drastic changes. Businesses and legal persons carrying on business in the UAE will have to pay corporate tax on their profits. This article discusses which branches of businesses have to pay corporate tax and delves into group relief and restructuring relief under the new taxation regime.
Who Needs to Pay Corporate Tax in UAE?
The Ministry of Finance in UAE has confirmed that all companies incorporated or effectively managed in UAE will be taxed at a 9% rate of corporate tax. This is applicable to all sources of revenue and net income disclosed in financial reports. Nonetheless, start-ups and small enterprises with net profits less than AED 375,000 will have a 0% tax rate.
What are the Requirements for Filing Corporate Tax for an Entity’s Branches in the UAE?
In general, businesses with operations in the UAE are required to file one corporate tax return. Branches that do not generate income need not be registered separately. Because branches and subsidiaries are recognized as extensions of the parent company, they are not obliged to file their own tax returns. Rather, the parent must incorporate all the activities in the branches in their corporate tax return.
Group Relief under the UAE Corporate Tax
To make tax compliance easier, the UAE permits businesses to create tax groups with parent companies and subsidiaries. Group relief allows businesses to deduct profits from one company against losses of another within the same group. This lowers the overall tax burden and simplifies the filing process.
Conditions for Claiming Group Relief
In order to be eligible for group relief under the UAE Corporate Tax Law, the following conditions need to be fulfilled:
Taxable Persons: The entities have to be resident persons or non-resident persons who have a permanent establishment in the UAE.
Ownership: At least one entity has to own at least 75% of another, or a third party has to own at least 75% of both entities.
Exemptions: None of the entities have to be exempt persons or free zone residents.
Accounting Standards: A uniform accounting principles and financial year must be employed by all the entities in their accounting books.
Restructuring Relief under the UAE Corporate Tax
The UAE corporate tax system provides for restructuring relief, which postpones taxation in mergers, spin-offs, or other reorganizations of business. For instance, an owner of a business can transfer the business to a new company in return for shares. The transaction can be eligible for tax exemption, and the acquiring company can utilize the transferor’s tax basis for assets and liabilities.
In order to take advantage of restructuring relief, the transfer has to be done at the tax net book value so that no gains or losses are brought to account for taxable income purposes.
Consult with Mubarak Al Ketbi – The Best Corporate Tax Consultants in Dubai, UAE
Working around the UAE corporate tax regulations is complex. Companies have to decipher the rules, exceptions such as group relief and restructuring relief, in order to pay as little as possible. Compliance and payment avoidance can be facilitated by referring to Mubarak Al Ketbi, a panel of seasoned tax consultants based in Dubai.
Mubarak Al Ketbi provides customized guidance and support with corporate tax registration, filing, and restructuring. Their FTA-approved tax agents ensure companies comply with all legal obligations while minimizing their tax liabilities.
Who must pay corporate tax in the UAE?
All businesses incorporated or managed in the UAE, except start-ups with profits below AED 375,000, must pay corporate tax.
Do branches need to file separate tax returns?
No, branches are considered extensions of the parent company and must be included in the parent’s corporate tax return.
What is group relief?
Group relief allows companies to offset profits from one entity against losses in another within the same group, reducing the overall tax burden.
What is restructuring relief?
Restructuring relief defers taxation during mergers or reorganizations, allowing businesses to transfer assets and liabilities without reporting gains or losses.
How can Mubarak Al Ketbi help with corporate tax?
Mubarak Al Ketbi provides expert guidance on corporate tax registration, filing, and restructuring, ensuring compliance with UAE tax laws.
