U.A.E Eyes Global Minimum Tax: Will Big Business Face a Bigger Bite in 2025?

 There have been a few recent developments concerning corporate tax in the UAE:

• UAE Pass for Tax Portal Access: Since late September 2023, the Federal Tax Authority has required the use of the UAE Pass to access the tax portal. This applies to corporate tax, VAT, excise tax, and even filing claims for refunds or appeals. [National News Article on UAE Corporate Tax Updates]
• New Giban for Corporate Tax: Companies registered for corporate tax now have unique Giban (Generated International Bank Account Numbers) specifically for this purpose. These differ from Gibans used for VAT purposes. This aims to streamline corporate tax payment processing. [National News Article on UAE Corporate Tax Updates]
• Implementation of Pillar Two Rules: The UAE is establishing the groundwork to implement the OECD's Pillar Two minimum tax rate of 15% expected to be rolled out in 2025. Public consultation is expected in early 2024. [Clyde & Co - Developments for UAE Family Businesses]

These updates focus on administrative aspects of corporate tax rather than any changes to tax rates or exemptions.

U.A.E -Implementation of Pillar Two Rules

Yes, the UAE is considering implementing the Global Minimum Tax, but with a potential delay. Here's a breakdown of the situation:

• The OECD's Global Minimum Tax, also known as Pillar Two, proposes a minimum corporate tax rate of 15%.
• The UAE currently does not levy a federal corporate income tax, although it introduced a 9% corporate income tax for businesses operating outside of free zones in June 2023.
• In March 2024, the UAE Ministry of Finance held a public consultation to gather feedback on implementing the Pillar Two rules. This suggests they are at least considering it.
• However, the consultation concluded in April 2024, and there haven't been any announcements about a definitive implementation date. Reports suggest the UAE might not implement Pillar Two in 2024 

In summary:

• The UAE is exploring the possibility of implementing the Global Minimum Tax under Pillar Two.
• They held a public consultation in March 2024, indicating serious consideration.
• Implementation seems unlikely for 2024, with 2025 as a potential target year.

It's important to stay updated on official announcements from the UAE Ministry of Finance for the latest developments. 

• Expected Timeline: The UAE is aiming to have Pillar Two in place by 2025.
• Public Consultation: Discussions and consultations with stakeholders regarding the specific implementation details of Pillar Two are anticipated for early 2024. This suggests the UAE government is finalizing the framework.
• Legal Updates: The Ministry of Finance has already amended the Corporate Tax Law to prepare for Pillar Two.

Resources for Further Reading:

• Update on UAE Pillar Two Implementation: [Orbitax Tax News on UAE Pillar Two] (you can search for this by title)
• Analysis of Pillar Two and UAE Free Zones: [Aurifer Tax - Pillar Two and UAE Free Zones]

U.A.E -Implementation of Pillar Two Rules

Pillar Two of the OECD's Global Minimum Tax framework aims to ensure multinational corporations (MNCs) pay a minimum tax rate of 15% globally. Here's a breakdown of the key details:

Core Concept:

• Effective Tax Rate (ETR): This is a calculated tax rate based on a company's profit divided by its tax bill.
• Top-up Tax: If an MNC's ETR in a particular country falls below the 15% minimum, the parent company (or another entity in the group) will be subject to a "top-up tax" to ensure the effective tax rate reaches 15%.

Implementation Mechanisms:

• Qualified Domestic Minimum Top-up Tax Rule: This gives priority to the country where the MNC operates with the low tax rate. This country can impose a top-up tax to ensure the minimum rate is met.
• Income Inclusion Rule (Subject to a Tax Treaty Override): If the top-up tax isn't applied in the low-tax country, the parent company (or another entity in the group) can be taxed on the difference between the subsidiary's profit and the minimum tax rate multiplied by its profit. This essentially forces the group to pay the top-up tax elsewhere.
• Undertaxed Profits Rule: This acts as a backstop. If neither of the above rules are applied, the parent company's country of residence can tax the difference between the minimum rate and the ETR in the low-tax country.

Who is Affected?

• The rules generally apply to large Multinational Enterprises (MNEs) with a consolidated group revenue exceeding EUR 750 million.

Implementation Timeline:

• A global implementation date of 2024 was initially proposed, but this has been pushed back.
• The UAE, like many countries, is targeting implementation by 2025.

Additional Points:

• There are mechanisms to avoid double taxation and ensure the system operates efficiently.
• Public consultations regarding specific implementation details are crucial, and the UAE is expected to hold these consultations in early 2024.

For further information, you can refer to resources like the OECD's documentation on Pillar Two or tax advisory firm publications on the topic. 

Don't Get Fined -Important Updates to the U.A.E Corporate Tax

 Registration Deadlines: The Federal Tax Authority (FTA) has issued new deadlines for companies to register for Corporate Tax. These deadlines depend on the company's type and situation:

• Resident Persons: Companies incorporated or established in the UAE, including those in Free Zones, must register within 3 months of their incorporation, establishment, or recognition.
• Non-Resident Persons:
• Companies with a Permanent Establishment in the UAE need to register within 6 months of establishing the Permanent Establishment.
• Companies with a nexus in the UAE (e.g., generating taxable income in the UAE) must register within 3 months of establishing the nexus.
• Companies with licenses issued in January or February 2024 need to register by May 31, 2024, regardless of their type.
• Failing to register within the specified timeframe can lead to a penalty of AED 10,000.

It's important to understand that avoiding fines associated with UAE corporate tax is not about finding loopholes, but about complying with the regulations. Here are some key steps to ensure compliance and avoid penalties:

1. Timely Registration:

• Ensure you register for corporate tax within the specified deadlines based on your license issuance month.
• The current deadlines are outlined in the Federal Tax Authority (FTA) Decision [source].
• Late registration incurs a penalty of AED 10,000.

2. Maintain Accurate Records:

• Keep detailed and up-to-date records of your finances, including income, expenses, and tax calculations, as per the Tax Procedures Law and the Corporate Tax Law.
• Failure to maintain proper records can result in fines of AED 10,000 for the first offense and AED 20,000 for repeat offenses within 24 months.

3. Timely Submission of Tax Declarations:

• Submit your tax declarations to the FTA within the stipulated deadlines.
• Late submissions incur monthly penalties, starting at AED 500 for the first 12 months and increasing to AED 1,000 per month thereafter.

4. Seek Professional Guidance:

• If you have any complexities regarding UAE corporate tax, consider consulting with a qualified tax advisor or accountant who can provide personalized guidance and ensure compliance.

Remember, the UAE government aims to create a fair and transparent tax system. By complying with the regulations, you can avoid unnecessary fines and penalties and contribute positively to the country's economic development. 

Additional Resources:

• You can find more information and guidance on the FTA website: https://tax.gov.ae/en/taxes/corporate.tax.aspx

It's important to note that this information is for general awareness only and may not apply to all situations. For specific advice regarding your company's tax obligations, it's recommended to consult with a tax professional.

 

U.A.E Announced Penalties for The New Corporate Tax Rules from First of August

 The UAE Ministry of Finance has announced penalties for violations of the new corporate tax rules.

The penalties are as follows:

·         Failure to file a tax return: A penalty of AED 5,000 for the first offense, AED 10,000 for the second offense, and AED 20,000 for the third and subsequent offenses.

·         Late filing of a tax return: A penalty of AED 100 per day for each day that the return is late, up to a maximum of AED 50,000.

·         Failure to pay tax: A penalty of 10% of the unpaid tax, plus interest at a rate of 12% per annum.

·         Falsification of documents: A penalty of AED 50,000, plus imprisonment for a term of up to five years.

The penalties will be effective from August 1, 2023. Businesses in the UAE should be aware of these penalties and take steps to ensure that they are compliant with the new corporate tax rules.

The UAE introduced a new corporate tax law in December 2022, which will be enforced on June 1, 2023. The law sets a corporate tax rate of 9% on taxable profits of more than AED 375,000 (approximately US$100,000).

Here are some of the key features of the new corporate tax law:

A flat tax rate of 9% on taxable profits of more than AED 375,000.

A zero-tax rate on taxable profits of up to AED 375,000.

A territorial tax system, meaning that only profits arising in the UAE will be taxed.

Several exemptions and deductions, including for research and development, intellectual property, and foreign dividends.

A withholding tax of 0% on certain types of UAE-sourced income paid to non-residents.

Here are some tips for businesses to avoid corporate tax penalties:

Make sure that you are aware of the new corporate tax rules and regulations.

File your tax returns on time and accurately.

Pay your taxes on time.

Keep good records of your business transactions.

Get professional advice from a tax advisor if you are unsure about anything.

By following these tips, businesses can help to avoid corporate tax penalties and stay compliant with the law.