Following last year’s release of Federal Decree-Law No. 47 of 2022 (the Corporate Tax (CT) Law), corporate tax is set to commence for financial years starting on or after 1 June 2023. Subject to certain exceptions such as free zone relief, Income tax will generally be imposed on Taxable Income at a rate of 9%, with the first AED 375,000 taxed at a rate of 0%.
In order to meet the requirements of the Corporate Tax Law, Taxable Persons, being corporates and individuals with businesses or business activities will need to register for the CT regime. The process of registration is available through the Federal Tax Authority’s (FTA’s) EmaraTax Portal.
To this end, the Ministry of Finance has now issued Ministerial Decision No. 43 of 2023 (Ministerial Decision) clarifying that certain entities are not required to register for CT purposes.
In this newsflash we briefly consider the effect of the clarifications announced in the Ministerial Decision regarding exemption from CT registration.
Corporate Tax Registration Exemptions
Ministerial Decision No. 43 of 2023 provides taxpayers with clarity regarding the requirement, or otherwise, to register for the new CT regime.
Under the CT Law, certain entities are exempt from CT. It is now clear that these entities and businesses are not required to register for CT purposes. This clarification is significant because it:
- removes the exempt entity or person from any current or future tax liability, where the exemptions continue to apply;
- ensures that documentary and other evidentiary requirements under the CT law are not applicable to the entity or person; and
- removes certain obligations to test/prove exemption or otherwise non-applicability of the CT Law in certain circumstances.
In the case of exempt entities such as government entities, government controlled entities, extractive businesses and non-extractive natural resource businesses that meet the necessary conditions as outlined under the Corporate Tax Law, the Ministerial Decision confirms that there is no requirement to register for CT purposes.
It also confirms that a non-resident person that earns only UAE sourced income and does not have a Permanent Establishment in the UAE is not required to register. Without this clarification, non-residents may have otherwise technically been subject to registration requirements, even where they ought to have been exempted from CT liability.
In order to continue to apply the registration exemption, those entities should continue to meet the criteria to apply the exemption. Where circumstances change such that the criteria are no longer met, registration may be required and CT liability may be triggered.
In particular, Theunis Claassen from our Tax Team, can guide you in identifying key areas of your business that will be impacted by the new corporate tax regime and assist you with specialist tax planning and implementation of appropriate mechanisms to achieve optimal tax outcomes for your business.
Please feel free to contact Theunis Claassen, our Head of Tax, to arrange an initial discussion regarding your business and its taxes.