UAE corporate tax: Exploring four major updates

In the past fortnight, there have been four significant developments in the UAE corporate tax landscape. Pawan Singh / The National

In the past two weeks, there have been four significant developments on the UAE corporate tax landscape.

The UAE Pass has become an integral part of interactions with regulators. As of the end of September, the Federal Tax Authority portal access can only be gained via this gateway.

This also applies to VAT and excise tax, as well as ad hoc claims such as refunds and appeals. Moving away from passwords and logins has its benefits, especially in terms of security.

UAE Pass is a mobile app that runs on your phone and is connected to the Emirates ID.

However, it also has its drawbacks. With tight reporting deadlines and the human tendency to leave things until the last moment, having a backup plan in case you lose or disable your mobile phone is a good idea.

For organisations with decentralised authority, the individual holding the one-time passwords may be different from the person preparing and submitting the information. Issues may arise due to international travel, time difference, or even connectivity that affects user validation.

What I am not sure about yet is whether a portal account can be shared across multiple UAE Pass accounts. For example, in late 2023, the Ministry of Finance requested and revoked the registration process of financial entities with special trading practices. It required two UAE Pass accounts to complete the process.

In light of the above, we believe it would be in the best interest of all UAE businesses to allow multiple users per portal account.

The second point we want to make is that the FTA has removed the obligation to update the formation documents before the start of the corporate tax registration process.

This is a reasonable and welcome change as the process, which involves the submission of these documents, takes time. There has been a significant decrease in the amount of time it takes to process additional information requests as well as an overall reduction in the completion time.

The earliest deadline for corporate tax registration is May 31 for entities with a trade licence that has an issue date of January. To be clear, this does not have anything to do with the fiscal year. That brings us to the topic of corporate tax deregistration.

With so much pressure on businesses to register, this may seem like a strange topic to discuss. The truth is, on any given business day, a legal entity is being set up or closed.

With the advent of corporate tax, anticipated restructurings have taken place. There’s a body of recent legislation that specifically governs how these transitions can occur. Basically, any changes can’t be viewed as purely tax planning, but as supporting commercial requirements.

Suppose an entity had a fiscal year, for which it reports corporate tax, from August to July. In April 2024, the entity is closed. This entity has existed for one partial reporting year. Without cessation of business, the entity would have closed its books in July 2024. Any amounts owed would have been reported and settled by the entity. It’s not unreasonable to ask: does the entity need to report before April 30, 2025, or nine months after the entity is closed, i.e., January 31, 2025?

I don’t think there’s a materiality rule as far as timing is concerned. How does a departing business owner satisfy this requirement?

The UAE issued its federal corporate tax law that will levy a headline 9 per cent rate on taxable income exceeding Dh375,000. Silvia Razgova / The National

Taxable income below the aforementioned threshold will be subject to a 0 per cent rate of corporate tax. Chris Whiteoak/ The National

No corporate tax will apply on salaries or other personal income from employment — be it in the government, semi-governmental, or private sector, the Ministry of Finance said. Chris Whiteoak/ The National

Businesses will become subject to the UAE corporate tax from the beginning of their first financial year that starts on or after June 1, 2023. Victor Besa / The National

The UAE corporate tax regime builds from best practices globally and incorporates principles that are internationally known and accepted. Victor Besa / The National

The fourth most intriguing development in the realm of corporate tax is the introduction of new Generated International Bank Account Numbers (Gibans) for entities registered for corporate tax. It appears that there have been no changes to those issued for VAT.

A Giban is a unique international bank account number generated by the UAE Central Bank. Embedded within this account number is a distinct identifier, such as your VAT or corporate tax number.

This innovative solution in payment management allows for seamless processing of transactions. Upon receiving funds, central bank systems automatically notify the relevant authority of the completed settlement. A recent enhancement to this process includes the addition of a self-generated six-digit payment reference number.

It is crucial to ensure that the transferred funds are accurate to the fil, as any discrepancies may result in payment rejection. Furthermore, during the three-step process, there is a possibility for the amount to fluctuate by one fil. This discrepancy is attributed to differing rounding rules in the middle step compared to the other two.

But it is unclear why the Gibans are being changed. Notifications have been sent to the registered email addresses and mobile numbers of each entity. As this is the bank account where any owed monies for corporate tax will be paid, please ensure that you update the bank account details accordingly.

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