A do-it-yourself guide to UAE corporate tax

Corporate tax becomes payable on profits above Dh375,000. Silvia Razgova / The National

Do-it-yourself corporate tax. How difficult can it be?

Which business person reading this has not reviewed dozens of contracts, be it trading or employment related?

While the two legal documents I have named are different, there is a structural integrity to each. Once you have read a few, you know what should appear when and where.

While this article is not meant to be corporate tax for dummies, adding to the well-known series of “how to” books, understanding how the legislation is built can be useful when having conversations with specialists.

No one wants to be the person who, brandishing the latest release, declares to all – with certainty – a particular perspective regarding an element of tax treatment.

Think of each formal publication as a single piece of a jigsaw. That will never be sufficient to comprehend the bigger picture.

This article will ignore core law, which underpins everything, as this does not directly instruct our actions with regard to corporate tax. Think of it as the foundation to the house of law you are entering.

Let us even set aside the corporate tax decree law released in December 2022, instead considering it part of our base understanding.

There are three primary sources of detailed supplementary statutory information. Two elements from the central government, Cabinet and ministerial departments, and one from the decree created by the Federal Tax Authority.

The senior party in this triumvirate is the Cabinet. Based on a special provision of the law, the Cabinet’s Council of Ministers may allow a minister or other competent authority to issue certain regulations.

Remember that each of these has other responsibilities besides corporate tax. That means when a decision is released using each respective body’s nomenclature, it will not necessarily sit in numerical order with regard to the subject matter.

For example, Cabinet Decision 49 of 2023 addresses the categories of businesses or their activities for resident and non-resident persons that are subject to corporate tax.

The determination of tax residency is Ministerial Decision No 27 of 2023.

Meanwhile, FTA decision No 5 of 2023 relates to changing an organisation’s tax period for corporate tax purposes.

Take one number off each of these and you have an entirely different subject matter area.

An additional challenge is that the information is not available in one place.

Most importantly, these decisions are coming into the public domain as they are ready for release.

Each can contain one or more components that can add a new dimension, clarification and complementary information to something already in the public domain.

The next category, while formal, should only be seen in a relatively supporting light.

Firstly, the public roadshows, where there are opportunities to ask questions after the formal presentations.

Meanwhile, the release in May of a 107-page corporate tax explanatory guide, written in English, has the potential to be remarkably helpful for any non-technical person.

To come is case law. Again, the relevant information will be published in another location. This is how all the countries in the world operate.

If you truly want to stay abreast of such a technical subject, the requirement is that you understand that world and surround yourself with all the data as it becomes available.

Let us look at two examples of having to take numerous sources of information from the official Cabinet, Ministerial and FTA communications.

Topic one: Natural persons and sole establishments

I’ve touched on these in my third article. You, the reader, are a natural person. Your entity is a juridical person.

A sole establishment is created through a juridical process, yet because it has unlimited liability, it is still a natural person.

That is the advice of the corporate tax explanatory guide. You may not have thought that reading the decree law.

Topic two: Threshold levels

These numbers come from three separate releases but must be read together.

Corporate tax becomes payable on amounts of taxable profits over Dh375,000. The small business relief applies to entities with revenue/turnover less than Dh3 million. These numbers exist on opposite sides of your profit and loss.

Finally, corporate tax will only apply to resident or non-resident individuals where the total business or business activity-related revenue exceeds Dh1 million.

In three days, corporate tax goes live.

If you have done nothing about it until now, have another read of this article and acquaint yourself with how best to prepare a reading list. Or find support.

After all, too many facts can be useless if you do not know how to use them.

David Daly is a partner at the Gulf Tax Accounting Group in the UAE