UAE businesses must integrate compliance activities into their operations: Ahmad Alagbari Chartered Accountants

How has the introduction of corporate tax in the UAE affected the financial planning and reporting practices of businesses operating in the region?

The implementation of corporate tax in the UAE has substantially reshaped the financial planning and reporting practices of businesses operating within the region. Companies are now obligated to adhere to stringent financial record-keeping standards and undergo periodic audits to ensure compliance with the Corporate tax regulations. Companies with annual revenue over Dh50 million must prepare audited financial statements under IFRS. Those below this threshold can use IFRS for SMEs. Additionally, Qualifying free zone companies seeking the 0 per cent tax rate must also maintain audited financial statements regardless of their revenue.

What are some of the key challenges that businesses in the UAE face in complying with the new corporate tax regulations, and how can they overcome these challenges?

UAE businesses face challenges in complying with new corporate tax regulations. Understanding the law, calculating taxes, and meeting deadlines are demanding. Cross-border issues like foreign taxation, withholding taxes, transfer pricing, and economic substance also arise. To ensure compliance, businesses must integrate compliance activities into their operations, maintain proper documentation, and evaluate double tax treaties. To overcome challenges, they should seek professional advice, use accounting software, establish internal controls, and stay updated on tax law changes. By proactively addressing these challenges, UAE businesses can minimize their risk of non-compliance.

How has the ESR been modified by Decision No. (98) of 2024? What are the implications for corporate tax and free zone companies? What proactive steps should these entities take to ensure compliance?

As per recently issued Cabinet of Ministers issued Decision No. (98) of 2024, UAE ESR will no longer be applicable for the financial year started on or after January 1, 2023 but will remain applicable for the financial years January 1, 2019 to December 31, 2022 (“ESR Period”).

However the UAE free zone entities and branches (“Free Zone Persons”) that wish to avail the Qualifying free zone person 0 per cent CT regime rate will still be required to comply with substance obligations from a UAE Federal Corporate Tax perspective i.e they must undertake core activities, have sufficient assets and employees, and incur adequate operating expenses.

Could you share insights on how businesses can optimise their tax strategies to benefit from available reliefs and exemptions under the UAE corporate tax regime?

UAE businesses can optimise their tax strategies by leveraging various reliefs, which can significantly reduce tax liabilities. For instance, small business relief exempts businesses with annual revenue below Dh3 million from CT. Tax loss relief allows eligible UAE companies to transfer losses within a group to offset future income. Business Restructuring Relief allows for tax-neutral intra-group transfers of assets and liabilities within a qualifying group under specific conditions. Companies can enjoy exemptions on dividends received from UAE companies and also from foreign entities (subject to participation exemption criteria.