UAE announces amendments to corporate tax law

Move allows taxpayers to claim payments for unutilised corporate tax credits

The new article states that a taxable person may claim a payment in respect of any unutilised tax credits. Getty Images

The UAE government has issued amendments to the corporate tax law in the country, adding to several legal reforms announced in recent days.

The amendments aim to clarify the mechanism for calculating and settling corporate tax due in cases where tax credits or other forms of incentives and reliefs are applied, the UAE government media office said in a statement on Monday. The decree grants the taxable person "the right to claim a payment in respect of unutilised tax credits", subject to timeframes and procedures.

Specifically, it clarifies that the tax liability shall be settled sequentially. Firstly, by utilising the withholding tax credit balance due to the taxable person. If corporate tax is still owed, any available foreign tax credit will be applied.

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If corporate tax is still owed, any remaining balances or other incentives or reliefs approved by the Cabinet will be used, the statement added. Any remaining corporate tax due, after applying all credits and incentives, must be paid.

The amendments clarify that not all tax allowances are equal, said David Daly, partner at Gulf Tax Accounting Group and a contributor to The National.

The move outlines "the order in which allowances can be matched against taxable profits [and] entities should be aware that some might be limited in the value that can be deducted", he said. "Some might have a time bar within which they must be used."

The decree also adds a new article allowing taxpayers to claim payments for any unused tax credits from incentives or reliefs, subject to conditions, timelines and procedures.

The article also authorises the Federal Tax Authority to withhold amounts from corporate tax revenue and, where relevant, any top-up tax revenue for the purpose of settling the approved claims.

This "appears to be referring to withholding tax", Mr Daly said. "While this now exists, the rate is zero per cent. What I believe we are seeing are some foundation stones for how withholding tax will interact with corporate tax."

The UAE introduced the federal corporate tax with a standard statutory rate of 9 per cent starting from the financial year beginning on or after June 1, 2023. It brought the income of companies exceeding Dh375,000 ($102,110) within the taxable bracket. Taxable profits below that level are subject to a levy of zero per cent.

Earlier this month, the Ministry of Finance also announced plans to amend its value-added tax (VAT) rules to simplify tax procedures starting next year.

The amendments stipulate that taxable people are relieved from issuing self-invoices when applying the reverse charge mechanism. They also establish a five-year time limit for submitting requests to reclaim any excess refundable tax after reconciliation has taken place.