MoF issues ‘Explanatory Guide’ for corporate tax purposes

Gulf Today, Staff Reporter

The Ministry of Finance (MoF) has issued an ‘Explanatory Guide’ for Federal Decree-Law No 47 of 2022 on Taxation of Corporations and Businesses (the “Corporate Tax Law”), which provides the legislative basis for imposing a federal tax on corporations’ and business profits effective for financial years starting on or after June1 2023.

The Guide provides an article-by-article explanation of the meaning and intended effect of the provisions of the Corporate Tax Law and its implementing decisions (issued as of 30 April 2023). The Guide may be used in interpreting the Corporate Tax Law and how particular provisions may need to be applied.

Younis Haji Al Khouri, Undersecretary of the Ministry of Finance, said: “The Ministry of Finance is working to provide clarity and guidance to those who are or may be subject to UAE’s Corporate Tax, so they can understand the provisions of the law and why it is enacted. The Explanatory Guide reflects our continued commitment to ensuring taxable persons are supported and provided with information ahead of the law’s entry into effect.”

The Guide includes explanations of the various features of the UAE’s Corporate Tax regime which would encourage business activity and minimise the compliance burden for taxable persons. Foremost, the application of a 0% Corporate Tax rate for taxable income up to AED 375,000, and a 0% Corporate Tax rate for qualifying Free Zone persons, in recognition of the importance of Free Zones to the development of the UAE historically. In addition, the Corporate Tax regime provides financial and administrative relief to support start-ups and small businesses. Businesses qualifying for such relief will not pay any tax and avail simplified filing requirements where their turnover is up to AED 3,000,000.

The Guide describes other features, including a 0% withholding tax on cross-border and domestic payments; exemptions from Corporate Tax for foreign branch profits, dividends and capital gains earned from domestic and foreign shareholdings where the relevant conditions are met; and foreign tax credits for foreign sourced income that is not exempt to avoid double taxation. In addition, it highlights targeted exemptions for certain entities which are subject to Emirate level corporate taxation or considered important to the social fabric of the UAE. These include government entities, investment funds, pension and social security funds, public benefit organisations and natural resource businesses.

The Guide also includes detailed explanation of internationally benchmarked Transfer Pricing documentation requirements and thresholds to ensure a minimal compliance burden on small and medium enterprises. It clarifies the ability to utilise Tax Losses in future tax periods without a time limitation, as well as the ability to transfer Tax Losses between tax group companies, where the relevant conditions are met. This means UAE groups can file and pay their Corporate Tax on a consolidated basis as a single taxable entity to ensure administrative efficiencies and simplicity.

Other features include Relief from Corporate Tax for intra-group transfers and business restructuring transactions, where the relevant conditions are met; the ability for family foundations and trusts to be treated as tax transparent to prevent personal wealth and investment income from being subject to Corporate Tax; and the alignment of the calculation of taxable income to accounting profits, with limited adjustments to determine the Corporate Tax payable.

The UAE will apply a 9% headline Corporate Tax rate for taxable income above Dhs 375,000, which is one of the lowest, competitive Corporate Tax rates globally and is aligned with the UAE’s objective of continuing to be a leading destination for business and investment.

Copies of the Corporate Tax Law, its implementing decisions and more information relating to Corporate Tax can be viewed on the Ministry.

Meandwhile, recently the Emirati Talent Competitiveness Council (ETCC) signed a Memorandum of Understanding (MoU) with the PwC Academy, in the presence of Mohamed bin Hadi Al Hussaini, Minister of State for Financial Affairs, at the Ministry of Finance headquarters (MoF) in Dubai. The signing was attended by Ghannam Al Mazrouei, ETCC Secretary General, Khaled Al Bustani, Director General of the Federal Tax Authority and PwC’s partners.

The ETCC emphasised that the MoU aims at developing Emirati talent skills and efficiencies through training courses in taxes, which come at a time when UAE is implementing a new corporate taxes ecosystem, that will take effect soon, making it so vital to develop Emiratis skills and capacities in the field to open doors for Emiratis to work in the taxes private sector, enable their corporates to settle their financial status and comply with new taxation laws, and positively enhance the UAE economy as a prominent global financial hub.

The ETCC explained that four training programmes will be developed, while the trainee targeted number will be determined annually based on the programme outputs and labour market requirements, and aligned with the ETCC’s strategic action plan in coordination with the Ministry of Human Resources and Emiratisation (MOHRE), and the acceptance terms at the PwC Academy.

The ETCC also revealed the approval of the necessary budget to cover the expenses of the training and development programmes and the study fees of Emirati trainees participating in the specialised programmes, in line with the annual approved budget.

MOHRE, will be responsible for managing the programme’s operational processes, including establishing strategic partnerships with private sector companies, managing the qualification terms, organizing introductory workshops to explain the programmes and initiatives and how to subscribe to them, opening the door for those who are willing to register in ‘NAFIS’ platform according to the applied and approved terms, announcing and marketing the approved programmes through various media channels and coordinating with the PwC Academy in all related inspection and operational matters.