UAE businesses will have up to nine months to comply with corporate tax

Payment and compliance deadline allows taxpayers up to 21 months from June 1, when the tax regime comes into effect, the Ministry of Finance says

The UAE will levy a headline 9 per cent corporate tax rate on income exceeding Dh375,000. Silvia Razgova / The National

UAE businesses will get a "generous" window of time to file their tax returns, the Ministry of Finance has said.

"Businesses in the UAE will have up to nine months from the end of the relevant tax period to submit their tax return and pay the federal corporate tax," the ministry said.

The UAE issued its federal corporate tax law on Friday that will levy a headline 9 per cent rate on taxable income exceeding Dh375,000 ($102,000).

Taxable profits below the threshold will not be taxed. No corporate tax will apply on salaries or other personal income from employment — be it in the government, semi-government, or private sector, the Ministry of Finance said last week.

The corporate tax will be effective for financial years starting on or after June 1, 2023.

The UAE's corporate tax regime is based on a self-assessment principle which means businesses are required to ensure that the documents submitted to the Federal Tax Authority are correct and comply with the law.

The new tax regime allows a generous compliance period, for example, businesses with a financial year starting on June 1, 2023, and ending on 31 May, 2024, will have until February 28, 2025, to file their returns and make payments.

“The regime’s payment and compliance deadline allows taxpayers a generous time frame of up to 21 months from the start of their financial year to prepare for filing and making their tax payments — a move that is in line with the UAE’s commitment to ensuring the implementation of the corporate tax regime is as smooth as possible," the statement said.

Where a business's first tax period starts on January 1, 2024, and ends on December 31, 2024, the return and payment would need to be made before September 1, 2025.

The Ministry of Finance has clarified that for ease of the tax administration process, UAE businesses will need to file only one corporate return per tax period. Any related supporting schedules need to be prepared and submitted for each tax period.

There is no requirement to complete a provisional tax return and make an advance tax payment.

In addition, to support start-ups and small businesses, the UAE corporate tax regime intends to provide relief in the form of simplified financial and tax reporting obligations.

The new tax regime also streamlines tax compliance processes for groups of companies. For example, a UAE resident group of companies can form a tax group to be treated as a single taxable entity if they meet specific conditions.

Benefits include efficient cost and time administration, a single tax return for the group and being able to consolidate the amount of group tax paid where some companies make a taxable profit and others have a tax loss, the ministry said.

A business that is subject to corporate tax will need to register with the FTA and obtain a Tax Registration Number. The registration process is expected to start in early 2023.

For a company with a first tax period starting on June 1, 2023, for example, registration would be within a 26-month period from January 1, 2023, to the final return filing date of February 28, 2025, while for a business with a first tax period from January 1, 2024, there would be a 33-month window from January 1, 2023, to September 30, 2025.

The standard statutory corporate tax rate of 9 per cent positions the UAE competitively when compared with other financial centres and developed economies globally.

The average top corporate tax rate for 2022 among EU countries is 21.16 per cent, 23.57 per cent among OECD countries, and 32 per cent in the G7, the Tax Foundation in Washington said.

The UAE corporate tax law exempts certain entities that include those involved in natural resource extraction activities in the country. However, they remain subject to existing local emirate-level taxation.

Other exemptions are available to organisations such as government entities, pension funds, investment funds and public benefit organisations “due to their vital importance and contribution to the social fabric and economy of the UAE”, the ministry said.

Existing free zone entities are exempt from corporate tax in recognition of the fundamental role they play in the promotion of free trade zones and in driving the growth of the UAE's economy.

The Ministry of Finance and the FTA will be hosting a series of corporate tax awareness sessions across the UAE to help businesses understand the new tax regime and be fully prepared for its introduction. Details of the sessions will be announced soon.