Focus on free zone companies
1. What are the key conditions for UAE free zone companies to qualify for 0 per cent corporate tax rate?
Businesses located in UAE free zones can enjoy 0 per cent corporate tax rate on their Qualifying Income, provided it satisfies the conditions specified under the law to become a Qualifying Free Zone Person (QFZP). These conditions are that the company:
o Maintains adequate substance
o Has not elected to be subject to corporate tax
o Transactions with related parties and connected persons adhere to the Arm’s Length Principle
On the other hand, QFZPs would pay the normal 9 per cent corporate tax on the income, which is not Qualifying Income.
What will constitute as Qualifying Income has not yet been clarified/defined. However, if we go by the language of the original public consultation document, all offshore income of the QFZPs would be Qualifying Income.
2. Are free zone persons that are eligible for 0 per cent corporate tax rate required to obtain a Corporate Tax Registration Number (CTRN)?
Yes, free zone companies that are eligible for 0 per cent corporate tax rate on all their income would still be required to obtain a CTRN and furnish the corporate tax return (nil return).
3. Is audit of accounts mandatory for QFZPs?
Yes. The Ministry of Finance, through a separate ministerial decision, has clarified that a QFZP is required to get its account audited. It is imperative to note that the monetary threshold of Dh50 million is not applicable to QFZPs. This implies that all QFZPs would be required to get their accounts audited, regardless of their revenue.
Relief for small businesses
4. Are there any relief measures provided to start-ups and small and micro businesses (SMEs) in the UAE CT Law?
Small businesses and SMEs may opt to avail the Small Business Relief (SBR) provided under the UAE CT Law. The SBR provisions of the UAE CT Law seek to provide relief to small businesses from corporate tax liability, subject to revenue not crossing the threshold limit of Dh3 million in the tax period and in any of the previous years. It is further clarified that the revenue should be computed having regard to the applicable accounting standards (IFRS).
5. Is there a time period within which the said relief is available to UAE businesses?
SBR shall be available to taxable resident persons for the financial year commencing from June 1, 2023 and continue for subsequent tax periods ending up to December 31, 2026. It is imperative to note that non-resident taxable persons are not eligible for SBR-related provisions.
6. Can a taxable person carry forward the business losses incurred during the period it was enjoying the Small Business Relief?
The taxable person can not carry forward the losses incurred during the period when it was availing the SBR. This means that it would be prudent to opt for SBR having regard to the business plan and the profit estimates. For example, if the business is likely to suffer losses during the period when the taxable person is eligible for SBR, it may choose not to apply for SBR.
7. Are QFZPs eligible for SBR?
A qualifying free zone person would not be eligible for claiming SBR.
8. Can a taxable person, who is part of a multinational enterprise (MNE) group, claim SBR?
The ministerial decision providing the guidelines on implementing SBR provisions has clarified that a taxable person, which is a ‘constituent entity’ of the MNE group, would not be eligible for the relief. Furthermore, an MNE group has been defined as a group with a total consolidated revenue of more than Dh3.15 billion.
In other words, a UAE company with a turnover of less than Dh3 million will not be eligible for SBR if the UAE company is a constituent entity of the MNE group with a turnover of more than Dh3.15 billion (approximately EUR 750 million).
9. Does a taxable person availing SBR need to obtain a CTRN and file corporate tax returns?
A taxable person would have to make an application initially to avail SBR. The said taxable person is also required to file a corporate tax return, even if it is paying 0 per cent corporate tax, upon enjoying SBR.
– The writer, Lokesh Gupta is Associate Director, Tax & Transfer Pricing, Nexdigm UAE