UAE CT will be applicable at the following rates:

Free zone enterprises will be subject to UAE CT and will be required to register and submit a CT return, although they will continue to benefit from CT vacations and 0% taxes provided they meet all regulatory criteria and do not do business with mainland UAE.

According to the press release and FAQs, there will be a new tax rate for major multinational corporations that fulfill the requirements under OECD ‘Pillar Two’ of the Base Erosion and Profit Shifting initiative that have for instance consolidated global revenues above EUR 750m).

CT will be paid on the accounting net profit stated in the business’s financial accounts, with minimal exceptions and modifications. Tax losses earned after the CT effective date may be carried forward to offset taxable income in subsequent fiscal periods.

There will be no UAE CT for:

Dividends, capital gains, and other investment returns obtained by foreign investors; employment income, real estate income, savings income, investment returns, and other income earned by people in their personal capacity that is not traceable to a UAE trade or company.

Exemption from UAE VAT is provided for the following:

Capital gains and dividends from qualifying shares; intra-group transactions and restructurings that qualify.

Domestic and international payments of interest, dividends, royalties, and other payments will not be subject to withholding tax in the UAE, and foreign tax credits will be available for UAE enterprises taxed on foreign-earned income.

How are CT returns to be submitted, and what accompanying documentation is expected?

UAE CT will be required to be submitted electronically once each fiscal period, with no obligation for advance UAE CT payments based on provisional tax filings through an internet platform similar to VAT and ESR returns.

At this period, no information regarding the supporting documents to be filed has been provided.

Depending on the customs of different jurisdictions, the following papers may be necessary:

• Financial statements.
• Calculation of taxable income demonstrating modifications made to the accounting net profit.
• Tax depreciation spreadsheets and schedules.
• Documentation on Transfer Pricing
• Specifics on linked party transactions
• Movement of inventories

UAE group firms may create a tax group, submit a single tax return for the group as a whole, and transfer tax losses to other group members.

The UAE’s transfer pricing regulations and paperwork requirements will be consistent with the OECD Transfer Pricing Guidelines.

Administration, collection, and enforcement of CT will be the responsibility of the Federal Tax Authority.

Financial Statements:

Are organizations need to produce their FS in accordance with International Financial Reporting Standards (IFRS), or will alternative accounting standards (e.g., U.S. Generally Accepted Accounting Principles (GAAP)) be accepted?

 Entities registered on the UAE mainland that are subject to Federal Decree-Law No. 32/2021 on Commercial Companies may adopt International Accounting Standards and Practices, including IFRS/U.S. GAAP. Entities registered in distinct free zones must adhere to the requirements imposed by the local free zone authorities. According to the DMCCA Company Regulations, IFRS must be implemented to all firms registered with the Dubai Multi Commodities Centre (DMCC). Moreover, according to the frequently asked questions published by the UAE Ministry of Finance, globally approved accounting standards, including IFRS, are authorized for the compilation of financial statements.

 What effect does CT have on the FS and auditing of the FS?

CT should be recorded in accordance with the Financial Reporting Standards used to prepare the financial statements (e.g., if IFRS, then under IAS 12 (Income Taxes)). External auditors’ responsibilities will include assessing the recognition and measurement of income taxes, as well as their disclosures.

Will all organizations exposed to CT be compelled to do FS audits?

All LLCs, private joint stock firms, public joint stock entities, and overseas branches are required under the UAE Commercial Companies Law to provide audited financial statements. In addition, free zones such as DMCC and JAFZA require audited financial statements to be presented to the free zone authorities within a certain period of time after the end of the fiscal year.

What should organizations do now?

With the pronouncements made, the major design elements, including, but not limited to, time, scope, tax base, and tax rate, are now clear. Businesses might begin the thinking process by considering the ramifications. There may be far-reaching ramifications, and tax and finance teams should prepare a road plan. As a first step, firms should acquire a thorough comprehension of the proposed changes in order to examine the effects thoroughly. These repercussions might need modifications to the legal framework, business strategy, contractual and (transfer) price, accounting and profit, systems and data, and organizational structure (e.g. tax function). Tax and finance teams should be prepared to initiate dialogues with the various business divisions and stakeholders about the anticipated consequences.

How we can assist you?

We are pleased to evaluate your current situation and advise you on the steps you need to take to be in compliance with CT once it goes into force in the UAE, if you have not already done so.

DBC has devised a five-phased methodology to assist firms achieve day one readiness. The stages are outlined below.

Phase 1: Impact evaluation before CT legislation and regulations.

1. Comprehensive analysis of the effects (with numbers)
2. Internal group or task force
3. System evaluation
4. plan for implementation

Phase 2: complete training for your finance and accounting teams to deal with CT effectively

Phase 3: Assessment, design, and planning following CT legislation and regulations. 

1. Assess the full scope of the changes that will occur;
2. note any necessary system modifications;
3. catalog any unclear CT positions;
4. conduct a risk/opportunity analysis for the transition plan

Phase 4: Implementation

1. Contract evaluation
2. Evaluate and implement relevant TP rules
3. Make adjustments to legal / operational structure
4. Apply system modifications
5. Acquire explanations / tax judgments from tax authorities
6. Assess tax accounting implications

Phase 5: Ongoing post-implementation assistance.

1. To keep your CT forms and TP paperwork ready for submission.