In Brief:
Corporate Tax (CT) has now commenced for the majority of taxable persons in the UAE. Apart from the main Federal Decree-Law No. 47 of 2022 (the CT Law), various other Ministerial, Cabinet and FTA Decisions have been released to supplement the CT Law (the Decisions). The FTA has also released a number of Guides that provide additional insights (albeit non-binding) on the application of the CT Law and these Decisions. This update briefly considers some recent Decisions, Guides and other ongoing developments in respect of UAE CT, including:
- The recent FTA Decision on Corporate Tax Registration Deadlines;
- The new FTA Guides on Qualifying Group Transfers, Business Restructuring Relief and the taxation of Investment Funds;
- Recent news on the UAE’s progress with the implementation of Pillar 2; and
- the recently released Taxpayer Charter.
Corporate Tax registration
In terms of Article 51 of the CT Law, a taxable person is required to register for CT within the timeline prescribed by the FTA and obtain a tax registration number, unless otherwise exempted. There is currently no registration threshold for UAE CT.
The FTA recently released FTA Decision 3/2024 (Effective 1 March 2024), which prescribes the dates by which a taxable person would need to register for CT. The decision distinguishes between juridical and natural persons as well as resident and non-resident persons, and prescribes specific registration dates for each category. For example a juridical resident person, incorporated prior to 1 March 2024, is required to submit a Tax Registration application with reference to the date on which its business licence was first issued. In addition to prescribing registration dates, the FTA has also amended Cabinet Decision 75/2023 to include an administrative penalty of AED 10,000 for failure to register on time.
Guidance - Qualifying Group Transfers and Business Restructuring
Articles 26 and 27 of the CT Law provide relief from CT in relation to certain group transactions (Qualifying Group Relief) and business transfers (Business Restructuring Relief). In summary, these provisions provide that no gain or loss needs to be taken into account in determining Taxable Income where:
- there is a transfer of one or more assets or liabilities between two Taxable Persons in the same Qualifying Group (Article 26(1)).
- a Taxable Person transfers its entire Business (or independent part) to another Person who is a Taxable Person or will become a Taxable Person as a result of the transfer in exchange for shares or other ownership interests of the transferee (Article 27(1)(a)).
- One or more Taxable Persons transfer their entire Business to another Person who is a Taxable Person or will become a Taxable Person as a result of the transfer in exchange for shares / ownership interests of the transferee, and the transferor(s) cease to exist as a result of the transfer (Article 27(1)(b)).
The FTA has recently released a new guide in respect of each of these provisions. The guides provide a general overview on the type of transactions covered, the eligibility criteria, tax consequences where the relief applies, possible clawbacks, compliance requirements and interaction with other provisions in the CT Law. The Guides can be accessed from the FTA’s website.
Guidance - Investment Funds and Managers
In terms of Article 10 of the CT Law an investment fund may apply to the FTA to be exempted from CT as a Qualifying Investment Fund, provided it meets certain requirements (refer to Article 10 as read with Cabinet Decision 81/2023). The Cabinet Decision also sets out the CT consequences for investors in such funds.
The FTA recently released a new guide that provides guidance on the application of these rules and in particular the taxation of investment funds, investors and the investment managers. The guide further considers the conditions for a Qualifying Investment Fund (including Real Estate Investment Trusts) to be treated as exempt from CT. Finally, the guide considers the investment manager exemption as contained in Article 15 of the CT Law, which provides that an investment manager will not create an agency PE for a non-resident investor where the requirements of Article 15 are met.
Pillar 2 Implementation
As a member of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, the Ministry of Finance has previously confirmed the UAE’s support for implementing a global minimum tax rate under Pillar 2 of the Two‐Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy (Pillar 2). As part of this initiative, the OECD has released a set of Global Anti-Base Erosion Rules (GloBE Rules) to assist countries in implementing such a global minimum tax rate.
The GloBE Rules in essence ensure that large multinational enterprise (MNE) groups pay a minimum level of tax on the income arising in each of the jurisdictions where they operate, by imposing a top-up tax on profits arising in a jurisdiction whenever the effective tax rate, determined on a jurisdictional basis, is below the minimum rate of 15%.
At present more than 50 countries have taken steps towards implementing Pillar 2, with countries at varying stages of implementation. In the UAE, Federal Decree Law 60 of 2023 already makes provision for a top-up tax to be imposed on MNEs in accordance with domestic rules to be introduced by the Cabinet in due course.
The Ministry of Finance also recently launched a public consultation process on the implementation of the GloBE Rules in the UAE, which process closed on 10 April 2024. It is anticipated that draft legislation will follow in due course with a view to implementation of Pillar 2 in the UAE during 2025.
New Taxpayer Charter
The FTA recently published a Taxpayer Charter that sets out the rights and obligations of a taxpayer. In summary, the Charter affords taxpayers a variety of rights in their dealing with the FTA, including the right to fair, professional and respectful treatment by the FTA and its staff. It also provides for consistent application of tax legislation by the FTA and emphasises taxpayer privacy and confidentiality. On the other hand, the Charter states that taxpayers have an obligation to fully comply with their tax obligations, cooperate with the FTA, provide full and accurate information to the FTA and assist in the deterrence of tax evasion. The Charter can be accessed from the FTA’s website.
Theunis Claassen from our Tax Team, can guide you in identifying key areas of your business that will be impacted by the Corporate Tax regime and assist you with specialist tax planning and the implementation of appropriate mechanisms to achieve optimal tax outcomes.
Please feel free to contact Theunis Claassen, our Head of Tax, to arrange an initial discussion regarding your business and its taxes.