The new developments in corporate tax in the U.A.E

 The following are some of the new developments in corporate tax in the UAE:

 The UAE corporate tax regime will come into effect on June 1, 2023. Businesses will be liable to pay tax on their taxable profits from the financial year starting on or after that date. The UAE corporate tax rate will be 9% for all businesses, except for those that generate more than AED 375 million in taxable profits. These businesses will be subject to a higher corporate tax rate of 15%.

 The UAE corporate tax regime will include several exemptions and deductions. For example, businesses that generate less than AED 375,000 in taxable profits will be exempt from corporate tax. Additionally, there will be deductions for certain expenses, such as research and development costs.

The UAE corporate tax regime will be administered by the Federal Tax Authority (FTA). The FTA has published a number of guidance notes and FAQs on the UAE corporate tax regime, which can be found on its website.

Here are some of the key features of the UAE corporate tax regime:

Territorial system: The UAE corporate tax regime is a territorial system, which means that only businesses that generate income from within the UAE will be liable to pay corporate tax. The United Arab Emirates (UAE) has recently adopted a territorial system of corporate taxation. 

There are a number of benefits to a territorial system of corporate taxation. First, it can help to attract foreign investment. Second, it can promote economic growth by encouraging businesses to invest and expand within the country. Third, it can simplify the tax system and reduce the compliance burden on businesses.

However, there are also some potential drawbacks to a territorial system of corporate taxation. First, it can lead to tax avoidance and base erosion. Second, it can be difficult to administer, as countries need to be able to track the profits that companies generate in different jurisdictions. 

Taxable profits: Taxable profits are calculated as revenue minus deductible expenses. Taxable profits are the profits of a business that are subject to corporate tax. Taxable profits are calculated by subtracting deductible expenses from revenue.

Deductible expenses are expenses that are incurred for the purpose of generating income for the business. Some examples of deductible expenses include:

• Cost of goods sold
• Operating expenses, such as rent, salaries, and utilities
• Interest on business loans
• Depreciation on business assets

Non-deductible expenses are expenses that are not incurred for the purpose of generating income for the business. Some examples of non-deductible expenses include:

• Personal expenses of the business owner
• Capital expenditures, such as the purchase of new business assets
• Dividends paid to shareholders

In the UAE, taxable profits are subject to corporate tax at a rate of 9%. However, businesses that generate less than AED 375,000 in taxable profits are exempt from corporate tax. 

Here is an example of how to calculate taxable profits: 

• Revenue: AED 1,000,000
• Cost of goods sold: AED 300,000
• Operating expenses: AED 200,000
• Interest on business loans: AED 50,000
• Depreciation on business assets: AED 100,000 
• Total deductible expenses: AED 650,000 
• Taxable profits: AED 350,000 

The taxable profits of the business in this example would be AED 350,000. This amount would be subject to corporate tax at a rate of 9%.

Transfer pricing: Transfer pricing is the process of determining the prices of transactions between related parties. Related parties are companies that are controlled by the same entity or that have a common interest. Transfer pricing is important because it can be used to shift profits between different countries in order to reduce a company's overall tax burden. 

The UAE corporate tax regime includes transfer pricing rules. These rules are designed to ensure that transactions between related parties are conducted at arm's length prices. Arm's length prices are the prices that would be charged between unrelated parties for the same or similar transactions. 

There are a number of different transfer pricing methods that can be used. The most common transfer pricing method is the comparable uncontrolled price (CUP) method. The CUP method compares the prices of transactions between related parties to the prices of similar transactions between unrelated parties. 

Other transfer pricing methods include the cost-plus method, the resale price method, and the profit split method. The choice of transfer pricing method will depend on the specific facts and circumstances of the case.

Businesses that engage in transactions with related parties are required to maintain transfer pricing documentation. Transfer pricing documentation is a document that shows how the transfer prices for transactions between related parties were determined. Transfer pricing documentation helps to ensure that the transfer prices are arm's length prices. 

The UAE Federal Tax Authority (FTA) has published a number of guidance notes and FAQs on transfer pricing. These guidance notes and FAQs can be found on the FTA's website. 

Businesses that are operating in the UAE or that are planning to expand into the UAE should carefully review the UAE transfer pricing rules to ensure that they are in compliance with all applicable laws and regulations. 

Here are some tips for complying with the UAE transfer pricing rules: 

1. Identify all related parties. The first step is to identify all of the companies that are related to your company. This includes companies that are controlled by the same entity, companies that have a common interest, and companies that are associated with your company through directors or shareholders.
2. Determine the prices of transactions with related parties. Once you have identified all of your related parties, you need to determine the prices of the transactions that you have with them. You should use an arm's length pricing method to determine the prices of these transactions.
3. Maintain transfer pricing documentation. You are required to maintain transfer pricing documentation that shows how you determined the prices of the transactions that you have with your related parties. Transfer pricing documentation is important because it helps to ensure that the transfer prices are arm's length prices.

Losses: Businesses in the UAE can carry forward losses for up to five years and offset them against future profits. This means that if a business makes a loss in one year, it can reduce its taxable profits in subsequent years by the amount of the loss. 

There are a few conditions that apply to the carry-forward of losses in the UAE: 

1. The loss must be a genuine trading loss. This means that it must be incurred in the ordinary course of business and not due to factors such as capital losses or capital gains.
2. The loss must have been incurred in the UAE.
3. The business must have been carrying on a trade or business in the UAE continuously since the year in which the loss was incurred.

To carry forward a loss, a business must submit a loss carry forward claim to the Federal Tax Authority (FTA). The FTA will then assess the claim and determine whether the loss is eligible to be carried forward. 

Here is an example of how the carry-forward of losses works in the UAE: 

Year 1: A business incurs a loss of AED 100,000. 

Year 2: The business generates a profit of AED 50,000. The business can offset its profit against the loss carry forward from Year 1, which means that it will not have to pay any corporate tax in Year 2. 

Year 3: The business generates a profit of AED 150,000. The business can offset its profit against the remaining loss carry forward from Year 1, which means that it will only have to pay corporate tax on AED 100,000 of its profit in Year 3.

The carry-forward of losses can be a valuable benefit for businesses in the UAE. It can help to reduce a business's tax burden and improve its cash flow.

Dispute resolution: Businesses in the UAE can carry forward losses for up to five years and offset them against future profits. This means that if a business makes a loss in one year, it can reduce its taxable profits in subsequent years by the amount of the loss.

There are a few conditions that apply to the carry-forward of losses in the UAE:

1. The loss must be a genuine trading loss. This means that it must be incurred in the ordinary course of business and not due to factors such as capital losses or capital gains.
2. The loss must have been incurred in the UAE.
3. The business must have been carrying on a trade or business in the UAE continuously since the year in which the loss was incurred.

To carry forward a loss, a business must submit a loss carry forward claim to the Federal Tax Authority (FTA). The FTA will then assess the claim and determine whether the loss is eligible to be carried forward. 

Here is an example of how the carry-forward of losses works in the UAE: 

Year 1: A business incurs a loss of AED 100,000. 

Year 2: The business generates a profit of AED 50,000. The business can offset its profit against the loss carry forward from Year 1, which means that it will not have to pay any corporate tax in Year 2. 

Year 3: The business generates a profit of AED 150,000. The business can offset its profit against the remaining loss carry forward from Year 1, which means that it will only have to pay corporate tax on AED 100,000 of its profit in Year 3. 

The carry-forward of losses can be a valuable benefit for businesses in the UAE. It can help to reduce a business's tax burden and improve its cash flow.

Dispute resolution in UAE corporate law can be conducted through a variety of methods, including:

Negotiation: This is the most common method of dispute resolution, and it involves the parties directly communicating with each other in an attempt to reach a mutually agreeable solution.

Mediation: This is a process in which a neutral third party (the mediator) helps the parties to communicate with each other and reach a resolution.

Arbitration: This is a process in which a neutral third party (the arbitrator) hears the case and makes a binding decision.

Litigation: This is the process of filing a lawsuit in court and having the case decided by a judge.

The best method of dispute resolution will depend on the specific facts and circumstances of the case. For example, if the dispute is relatively simple and the parties have a good relationship, then negotiation may be the best option. If the dispute is more complex or the parties have a poor relationship, then mediation or arbitration may be a better option. If the parties cannot resolve the dispute through other methods, then litigation may be the only option. 

Here is an overview of the arbitration and litigation processes in the UAE: 

Arbitration: 

Arbitration is a confidential process, and the arbitrator's decision is binding on the parties.

1. To initiate arbitration, the parties must agree to arbitrate the dispute and sign an arbitration agreement.
2. The arbitration agreement will typically specify the rules of arbitration that will be used and the qualifications of the arbitrator.
3. The arbitration hearing will be conducted in accordance with the rules of arbitration that the parties have agreed to.
4. After the hearing, the arbitrator will issue a decision, which is binding on the parties.

Litigation: Litigation is a public process, and the court's decision is binding on the parties.

To initiate litigation, one party must file a lawsuit in court.

The lawsuit will be served on the other party, and the other party will have the opportunity to respond.

The case will then proceed through a series of pre-trial hearings, followed by a trial.

After the trial, the judge will issue a decision, which is binding on the parties.

Businesses that are operating in the UAE or that are planning to expand into the UAE should carefully consider their dispute resolution options. It is important to have a dispute resolution strategy in place in case a dispute arises. 

Here are some tips for choosing the right dispute resolution method: 

1. Consider the nature of the dispute. Is it relatively simple or complex?
2. Consider the relationship between the parties. Is it good or poor?
3. Consider the cost and time implications of each dispute resolution method.
4. Consider the enforceability of the dispute resolution method.

Here are some of the key benefits of the UAE CT regime:

• Competitive tax rate: The UAE CT rate of 9% is one of the most competitive in the world. This makes the UAE an attractive destination for businesses looking to reduce their tax burden.
• Simple and efficient tax system: The UAE CT system is designed to be simple and efficient. Businesses can file their tax returns online and make tax payments electronically.
• Experienced tax authorities: The UAE has a team of experienced tax authorities who are available to assist businesses with their tax compliance obligations.

The UAE CT regime is expected to have a positive impact on the UAE economy. It will attract new businesses to the UAE and help existing businesses to grow. The tax regime will also generate revenue for the government, which can be used to fund public services and infrastructure development.