This research aims to provide a comprehensive overview of the corporate tax laws in the United Arab Emirates (UAE), with a focus on the Value Added Tax (VAT) law and the role of the Federal Tax Authority (FTA) in administering and enforcing these laws.

 

The study discusses the essential provisions of the VAT legislation, such as the registration requirements, exemptions, and compliance obligations. Additionally, it offers details on the recent changes and modifications to the UAE’s tax legislation as well as information on the double tax agreements the UAE has with other nations. Additionally, this study will go over the expertise in UAE taxation that GBO offers. Businesses and people operating in the UAE, as well as those who are interested in doing business there, might find this study to be a useful resource.

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    How can Free zone businesses prepare for the UAE corporate tax on 1 June 2023?

    UAE’s new Corporate Tax Law (CT) comes to effect on 1 June 2023, all businesses in the UAE (including Free Zone companies) will be required to file corporate tax returns with the Federal Tax Authority (FTA), even if they are not liable to pay any tax and if they earn no income at all. To be able to file a tax return, businesses are required to prepare and present proper financial and accounting records. Thus, the implementation of the Corporate Tax provides small businesses an opportunity to align their processes to internationally accepted standards.

     

    UAE Corporate Tax Law

    Although the UAE does not impose a federal corporate income tax, several of its free zones may do so. For instance, businesses based in Dubai International Financial Centre (DIFC) must pay 10% of their net profits in corporate income tax.

     

    UAE VAT Law

    Value Added Tax (VAT) was instituted in the UAE in 2018 at a rate of 5%. Businesses must register for VAT if their annual revenue exceeds AED 375,000. VAT is applied to most goods and services, with some exemptions such as basic food items, education, and healthcare.  Businesses must register for VAT if their annual revenue exceeds AED 375,000. Most goods and services are subject to VAT, with few exceptions including basic food items, education, and healthcare.

    • Businesses that are not based in the UAE but provide services to UAE clients will be regarded as making a “distance sale” when doing business there. In the event that their annual distance sales surpass AED 100,000, they must register for VAT.
    • Businesses that are not based in the UAE but nonetheless sell goods to customers there are referred to as doing “distance sales” of goods. In the event that their annual distance sales surpass AED 50,000, they must register for VAT.

    It’s important to note that companies operating in the UAE must charge VAT on all goods and services provided to clients there, even if they are not based there.

    VAT is imposed on the supply of goods and services within the nation, including imports. Businesses that have registered for VAT must add VAT to all sales and pay VAT on all purchases. The VAT they spent on their purchases can subsequently be claimed back as input tax as long as it is connected to their taxable supplies.

     

    UAE’s Federal Tax Authority (FTA)

    The Federal Tax Authority (FTA) is the government agency responsible for the administration and implementation of tax laws in the United Arab Emirates (UAE). It was established in 2017 to oversee the implementation of the UAE’s Value Added Tax (VAT) system and other taxes as part of the country’s ongoing efforts to diversify its revenue sources.

    The main responsibilities of the FTA include:

    • Registering businesses for VAT and other taxes
    • Issuing tax-related guidance and regulations
    • Collecting and enforcing taxes
    • Conducting audits and investigations to ensure compliance with tax laws
    • Providing taxpayers with various e-services and support
    • Representing the UAE in international tax matters

    The FTA also works closely with other government agencies to ensure compliance with tax laws and regulations, and to provide support and guidance to taxpayers.

    The FTA offers various e-services such as online registration for taxes, submitting tax returns, and paying taxes online.

    The FTA also offers a Voluntary Disclosure Program, which is a program that allows taxpayers to disclose any past non-compliance with tax laws voluntarily, without facing penalties or prosecution

     

    UAE Double Tax Treaty

    A double tax agreement exists between the UK and the UAE that tries to prevent double taxation of income generated in one country by a resident of the other. The pact includes provisions for information sharing between the two nations and deals with capital and income taxes.

    These treaties typically cover taxes on income and capital and include provisions for the exchange of information between the two countries.

    Here is a list of some of the countries that UAE has double tax treaties:

    • Austria
    • Bahrain
    • Belgium
    • Canada
    • China
    • Cyprus
    • Czech Republic
    • Egypt
    • France
    • Germany
    • Greece
    • India
    • Indonesia
    • Ireland
    • Italy
    • Kuwait
    • Malta
    • Mauritius
    • Morocco
    • Oman
    • Pakistan
    • Philippines
    • Poland
    • Portugal
    • Romania
    • Russia
    • Singapore
    • South Africa
    • Spain
    • Sri Lanka
    • Switzerland
    • Syria
    • Tunisia
    • Turkey
    • Ukraine
    • United Kingdom
    • United States of America
    • Uzbekistan

     

    New corporate tax updates

    s: The UAE implemented a new excise tax on a number of products in 2019, including tobacco products, energy drinks, and fizzy beverages. Additionally, the Federal Tax Authority (FTA) declared that beginning in 2020, businesses had a yearly revenue of more than AED 150 million will need to submit their VAT filings on a quarterly basis.

     

    Conclusion

    In recent years, the UAE has enacted a number of new tax legislation, such as the Value Added Tax (VAT) and Excise Tax. Additionally, separate corporation tax laws could apply to enterprises operating in the free zones of the UAE. In order to prevent double taxation of income generated in one nation by a resident of another country, the UAE and the UK have also signed a double tax treaty. Tax laws are always changing therefore it is important for businesses to stay updated on the latest developments

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