The UAE Corporate Tax provisions are getting fleshed out and businesses need to gain in-depth info on how to traverse through all the requirements. Image Credit: Shutterstock

The UAE Ministry of Finance (MoF) last week issued an explanatory guide on the forthcoming corporate tax.

The tradition of issuing a clause by clause explanation of tax legislations is best-in-class. It helps stakeholders understand the objective of each provision. We are happy that various tax interpretations detailed in this column stands validated in the MoF guide.

For tax professionals, the speed of legislative developments in the last few weeks is a thrilling. But the sudden information inflow can create anxiety among business owners, management and the finance personnel. There is no reason to be anxious.

The sun that will rise on June 1, 2023 will not be any different from the past, and businesses should simply focus on understanding the tax impact and the compliance obligations.

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What next?

The primary question among the businesses is ‘what next?’, which is a reflection of two possibilities – either they are unaware about the next steps or there were gaps in approaching the corporate tax compliance so far.

The impact assessment studies – done in the absence of key tax laws – might prove to be speculative now and require revalidation to remain useful. The discussions around free zones - already saturated - can progress once the cabinet decision is released. So is the topic of taxation on individuals conducting business in the UAE.

More than generic tax information, businesses require a set of recommendations, a definitive action plan and its corresponding benefits.

Information vs knowledge

It is about time for businesses to distinguish between information and knowledge. Information is only helpful for general awareness. The tax information would not help them assess the impact on their business operations. The information itself should not be presented as an action plan or impact assessment.

Businesses need to be provided with knowledge, i.e., a contextual analyse the tax provisions in relation to their specific operations, its impact and customised tax optimisation and compliance strategies.

The list of factors to determine the permanent establishment is only information and will not be of any practical use to the businesses. Businesses need a confirmation if their specific operations would result in a permanent establishment and corresponding mitigating factors.

The list of non-deductible expenses – as given in the law - is again information as businesses need to understand that the deductibility of the expenses actually incurred by them. The list of transfer pricing methods and their relative advantages/disadvantages – being only information – is not directly relevant unless the analysis recommends the appropriate method for respective transaction groups along with supporting reasons.

When it comes to Place of Effective Management (PoEM), businesses should be provided with specific do’s and don’ts to avoid double taxation or fall under ‘treaty-abuse’ clauses.

Clear expectations and delivery

For the action plan/assessment studies, it is important for businesses to evaluate if they are getting clarity on the following – what needs to be done, how it needs to be done, why it needs to be done, when it needs to be done, and who will do it.

The 4Ws and 1H approach does not require a prior tax experience among the businesses. For stakeholders assisting the business in tax implementation, following the above approach is equally important along with an indemnity to stand by the recommendations.

The ‘what needs to be done’ holds significant importance. The businesses cannot be left to fend for themselves, or know what to do by giving a generic statement such as ‘the company should ensure the compliance with transfer pricing documentation (or any other xyz provisions)’.

It will take only a minute to recommend a person to cook to satisfy his/her hunger, what the person really need is to know is what ingredients to mix, their proportions, and how to cook (and perhaps how not to burn food).

A countdown to June 1 is more of an excitement than of any practical implications if businesses are not aware of the actions expected from them. A clearly defined action plan alone will help businesses to transition into the corporate tax regime without pain and financial inefficiencies.