UAE VAT Return and Excise Tax Return Filing Deadlines

UAE: VAT Return and Excise Tax Return Filing Deadlines

UAE: VAT Return and Excise Tax Return Filing Deadlines 

The Federal Tax Authority of the United Arab Emirates announced the final deadline for filing VAT returns and excise tax returns: 

Type of Return Deadline  
VAT return 29 August 2022 
Excise return 15 August 2022 

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UAE's Federal Tax Authority increases inspections visits 104% in 6 months

UAE’s Federal Tax Authority increases inspection visits by 104% in 6 months

UAE’s Federal Tax Authority increases(FTA) inspections visits 104% in 6 months

UAE’s Federal Tax Authority increases(FTA) inspections visits 104% in 6 months: During the first half of this year, the FTA carried out 9,948 inspection visits in local markets across the country in collaboration with the Ministry of Economy, the Federal Authority for Identity, Citizenship, Customs, and Port Security, and various departments of Economic Development across the country

The Federal Tax Authority (FTA) significantly expanded its efforts in collaboration with various government departments, ministries, and authorities to protect consumers from non-compliant products, combat tax evasion, and ensure compliance with tax legislation and procedures.

During the first half of this year, the FTA carried out 9,948 inspection visits in local markets across the country in collaboration with the Ministry of Economy, the Federal Authority for Identity, Citizenship, Customs, and Port Security, and various departments of Economic Development across the country.

Inspections conducted in the first half of 2022 increased by 104 percent compared to 4,878 inspections conducted in 2021 during the same period.

In a press statement, the authority confirmed that the campaigns aim to strengthen market control through intensified market inspections across all the emirates. The FTA’s plans aim to ensure laws, legislation, and tax procedures are followed to guarantee the protection of the national economy, provide the highest levels of protection for consumers, combat commercial fraud, and prevent the trade of inferior and counterfeit products that harm the public health and the national economy.

The authority explained that the control efforts resulted in the seizure and confiscation of nearly 5.5 million pieces of tobacco products that did not conform to specifications and do not carry “digital tax stamps”, in addition to the seizure of nearly 1.07 million packages violating other selective goods, which include soft drinks, energy drinks, and sweetened drinks. The total value of tax liabilities seized during these inspection visits amounted to AED130.4 million.

Inspections resulted in the seizure of 5.5 million packages of tobacco products not bearing “Digital Tax Stamps”. A further 1.07 million packages of selected goods, including soft drinks, sweetened beverages, and energy drinks, were valued at AED130.4 million in tax liabilities.

The authority indicated that the effective control of the markets contributed to the detection of facilities violating tax laws, as 1,213 violations were issued during the field inspection visits carried out in the first half of 2022, while 404 notices of non-registration were sent to violating entities.

The FTA reaffirmed that the implementation of the Excise tax had achieved remarkable success over the nearly five years since its application. The Excise tax has contributed positively to achieving social targets, reducing the consumption of harmful products by the public, and improving the environment. In addition, the tax has played a considerable role in increasing the government’s financial resources to support endeavors toward serving the public and enhancing the quality of life.

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Are You Aware Of Bank Guarantee In UAE

Are You Aware Of Bank Guarantee In UAE?

Are You Aware Of Bank Guarantee In UAE?

It is a comfort, which is issued by the issuing bank to the beneficiary in whose favor the guarantee is issued to cover the losses if the principal debtor fails to abide by the terms of the agreement. Generally, it is issued in cases where either party requires strong business commitment and assurances that the other party will fulfill the contractual obligations envisaged in the contract. It is the most commonly used collateral in any international business.

UAE being most commonplace for international investors, the usage of bank guarantees is manifestly large in number. The Commercial Lawyers in Dubai have outlined various aspects of bank guarantee and the law of UAE governing the same. Federal Law number 18 of 1992 on Commercial Transactions Law regulates the very aspect of bank guarantee. It defines it under Article 411 as follows: “An undertaking issued by the bank to settle the customer’s debt to a third party in line with the conditions agreed upon and mentioned in the guarantee, which may be any given point of time or unlimited.”

Understanding the concept

A guarantee issued by the bank is considered a commercial activity irrespective of the person for whom the guarantee is issued. Thus, it is governed by the provisions of the Commercial Transactions Law. In addition, it also covers certain aspects of Civil Transactions Law (Federal Law Number 5 of 1985).

Each party involved in the bank guarantee has independent rights and obligations. The issuing bank or the guarantor has distinctive obligations as that of the principal debtor. Importantly, any guarantee issued by the bank is entirely separate from the contract or agreement entered into by the parties.

The bank or the guarantor is under an obligation to indemnify the beneficiary regardless of his position and the separate arrangement between the principal debtors or the beneficiary. The guarantor and the principal debtor have independent obligations towards the beneficiary, as the bank guarantee arises joint and separate obligations.

Accordingly, a bank guarantee is eminent from other guarantees mentioned under the Commercial Transactions Law which has the tendency to create contingent obligations dependent on the happening of a certain event.

Structure of a Guarantee

In accordance with the Commercial Transactions Law, a bank guarantee should be in a specified format and must entail the following details:

  1. It must be of a certain specified amount. A bank guarantee without a specific amount or a vague amount shall not be enforceable;
  2. There is no obligation to mention the time limit on the guarantee. However, it is pertinent to note that, if there is a time limit mentioned on the guarantee, it shall be deemed expired post the expiration of such time. This is in accordance with Article 418 of the Law, which states that unless otherwise expressly agreed to renew the guarantee prior to the expiry and a request for payment is received from the beneficiary, the guarantor should be allowed to discharge the liability vis-a-vis the beneficiary post the expiration of the bank guarantee;
  3. Supposedly, the time limit is not mentioned on the guarantee; it shall be deemed expired in accordance with the UAE law which is 10 years from the date of issuing the guarantee.

It is indeed confirmed by the Commercial Transactions Law, that the Beneficiary is not empowered to assign his rights to any third party under the bank guarantee without the prior written consent of the guarantor. Alternatively, the beneficiary can be offered the right of the assignment while finalizing the bank guarantees thereby seeking prior permission from the guarantor to allow the beneficiary to transfer the rights in the bank guarantee.

The right transferred under the bank guarantee allows the assignee to act on the position of the beneficiary and possess all the rights as that of the beneficiary. Accordingly, the parties will be liable to the assignee, and the original beneficiary will have no rights or claims on the guarantor or principal debtor, post the transfer.

Invoking the Guarantee

Despite the fact that the issuance of a Bank Guarantee results in joint and a spate liabilities of the Guarantor and the Principal Debtor, the Guarantor is just at risk to pay to the Beneficiary upon the invocation of the Bank Guarantee by the Beneficiary and not upon default or act or oversight by the Principal Debtor. Primarily, a Bank Guarantee ought to be unrestricted; however, if it is subject to any conditions regarding the submission of any documents by the beneficiary, such conditions should be clearly outlined in the bank guarantee. The Beneficiary will not have the capacity to invoke the Bank Guarantee except if such conditions are not met or the required documents are not submitted. It is the obligation of the Guarantor to demonstrate that the Bank Guarantee is liable to such conditions.

Once the beneficiary invokes the guarantee in accordance with the conditions mentioned in the guarantee, the guarantor is obliged to make such payment unless otherwise restricted by the order of the competent court. It is, however, important to note that there is no time limit for the guarantor to make payments post the invocation of the bank guarantee. This is generally stipulated in the concerned document and agreed upon by the parties. The law has offered freedom to the parties to decide the time within which the guarantor will make the payments post the invocation of the bank guarantee at the time of issuance or signing the guarantee.

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Appeal For ESR Penalty Imposed In UAE

Appeal for ESR Penalty Imposed In UAE

Appeal for ESR Penalty Imposed In UAE

When you are aware of the reasons for attracting ESR Penalty, you should next be equipped with the steps to resolve it!

What if

  1. The licensee or the exempted licensee did not commit the violation attributed to it?
  2. The administrative penalty imposed is not proportionate to the violation?
  3. The administrative penalty imposed exceeds the limited prescribed?

In such cases, the licensee or an exempted licensee can submit an appeal request to the Federal Tax Authority (The National Assessing Authority).

Is the whole system user-friendly? – Absolutely Yes. A user can easily follow the simple steps to file an appeal against the penalty imposed.

STEPS TO FILE AN APPEAL REQUEST

Step 1: Log in to the Ministry of Finance Portal. (You need to have a registered MoF Corporate account, or create a new account to access the Economic Substance Filing Portal).

Note: An appeal must be submitted for each administrative penalty separately.

Step 2: Click “File Appeal” to submit an appeal request.

Note: The system shows the deadline for submitting an appeal request and payment of the penalty.

(i) The deadline for submitting an appeal is (40) forty working days from the date on which such administrative penalty is levied.

(ii)The final deadline for paying the penalty is (40) forty working days from the date on which such administrative penalty is levied.

The calculation of the final deadline for paying the penalty is stopped upon submitting the appeal request, and it will be resumed if the appeal request is rejected or withdrawn.

Step 3: On the Appeal request page, the applicant must add a simplified explanation of the reason for submitting the appeal request and attach the supporting documents.

Step 4: Press “Next” and then send the request after reviewing the explanation and the attached documents by pressing “Send”.

Note: After sending the request, you will receive the message that your submission has been received.

WHEN TO EXPECT THE DECISION FROM THE NATIONAL ASSESSING AUTHORITY?

The National Assessing Authority makes a decision Within (40) Forty working days from the date of meeting all requirements. It informs the applicant of the decision within (5) working days from the date of issuance of the decision.

REQUEST FOR MORE INFORMATION / DOCUMENTATION BY THE ASSESSING AUTHORITY

The National Assessing Authority may request more information/documentation from Licensee and the applicant must provide the required information/documentation within (5) five working days from the date of such request.

Note: The National Assessing Authority has the right to reject appeals in case the information/documentation is not provided.

THE EXTENDED DATE OF DECISION

When providing the new supporting documents that were requested, the National Assessing Authority will review the appeal request and issue a decision within (40) forty working days from the date of receiving the required documents and the applicant will be notified within (5) five working days from the issuance of the decision.

SOME ADDITIONAL NOTES FOR YOUR INFORMATION

  1. Up to 10 documents supporting the appeal can be submitted. However, must not be more than (40) Forty (MB) in total size.
  2. The explanation provided in the portal would be best if it is short and accurate.
  3. You can always follow up by sending an email to ftaesr@tax.gov.ae.
  4. There is a Case ID provided for each appeal. You can find the appeal Case ID when you click on the “View Summary” on the Licensee Dashboard.
UAE Compliance on tax regulations rises in Q1

Compliance on tax regulations rises in Q1

UAE: Compliance with tax regulations rises in Q1

The businesses across the UAE have adopted the new tax structure and increasing their compliance with regulations by posting a 2.42 percent growth in registration for value-added tax (VAT) during the first quarter of 2022, the latest data shows.

The Federal Tax Authority (FTA) on Wednesday said the number of VAT registrants increased to 367,157 in the January-March quarter compared to 358,468 in the same quarter last year.

The FTA board of directors, who met under the chairmanship of Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Deputy Ruler of Dubai, Deputy Prime Minister, Minister of Finance, and Chairman of the FTA board of directors, adopted the authority’s financial statements for 2021.

The meeting, which was held at the authority’s headquarters in Dubai on Wednesday, reviewed a report on the FTA’s plans to develop and enhance the tax system’s procedures and bring them in line with best international practices. It also discussed ways to upgrade services offered to customers through fast, accurate, and easy-to-use digital platforms. The FTA board of directors also examined the progress made in developing the draft corporate tax law.

FTA services upgrade

Sheikh Maktoum issued directives to maintain the pace of upgrades made to the FTA’s services, in line with international best practices and digital transformation plans, which were developed to boost the UAE’s competitive edge in terms of services provided. It will support the country’s vision to become the world’s highest-ranking government on trust and performance indicators.

“The directives aim to focus on the customer and enhance competencies to become a world leader in government services, drawing on the UAE’s ‘Principles of the 50’ and the terms of the new methodology for government action,” according to the Dubai Media Office statement.

Customer’s satisfaction

The reports, presented during the meeting, demonstrate the FTA’s efforts to maintain high-performance scores across all activities. Sheikh Maktoum noted the authority’s plans to elevate its services to ensure satisfaction for all clients from all segments of society.

“The Federal Tax Authority is committed to strengthening its relations with all entities involved in implementing the tax system in the government and private sectors, and to fulfilling its role in driving nationwide economic diversification policies through the administration and collection of federal taxes, in line with best practices,” he said.

“The authority is constantly reviewing the executive regulations it issues for each tax legislation in order to ensure top-level performance and streamlined procedures. The stages ahead will witness sweeping developments and upgrades to tax systems and procedures in order to enhance the quality of the FTA’s services,” Sheikh Maktoum said.

Atik Munshi, managing partner, FinExpertiza UAE, said the UAE is among one of the lowest tax jurisdictions in the world.

“Considering this aspect alone, businesses are willing to go the extra mile and are happy to comply. FTA has been very proactive and business-friendly in its pronouncement of several clarifications to ensure easy compliance,” he said.

“More financial discipline has evolved over the years in the UAE corporates which too requires that the entity is in line with the regulations. With the economy improving, it is expected that FTA will see more registrations,” he added.

Excise tax registrants up

It was informed to the FTA board that the number of excise tax registrants increased 3.02 percent to 1,398 in the first quarter from 1,357 in the same quarter last year while the number of tax agents has increased to 446 compared to 433, reflecting an increase of three percent.

The report revealed that the authority approved new applications from UAE citizens to recover the VAT they incurred on building their new residences; the value of refunds reached Dh185,038,134 during the first quarter of 2022 compared to Dh118,503,245 in the same quarter of 2021, showing a record growth of 56.15 percent.

The significant increase reflects the FTA’s commitment to streamlining online procedures for UAE citizens looking to recover the VAT they incurred on building their new residences, in line with the leadership’s vision to develop a modern housing system for citizens and ensure their wellbeing, given that they are the main objective and beneficiaries from the initiatives and projects implemented by all state institutions.

Furthermore, the report noted the results of the implementation of two phases of the ‘Marking Tobacco and Tobacco Products Scheme’, which aims to halt the sale or possession of all types of cigarettes, water pipe tobacco (Mu’assel), and electrically heated cigarettes that do not carry the Digital Tax Stamps in local markets.

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News Courtesy: khaleejtimes.com

UAE, India discuss economic opportunities of energy transition

UAE and India discuss economic opportunities for the energy transition

UAE and India discuss economic opportunities for the energy transition

Government and business leaders in India and the UAE have held a series of high-level meetings focused on opportunities within the energy transition and industrial growth. The meetings were held on the sidelines of UAE Climate Envoy and Minister of Industry and Advanced Technology Dr. Sultan Al Jaber’s visit to New Delhi on Thursday, UAE’s official news agency Wam said.

Union Environment Minister Bhupender Yadav on Thursday met Al Jaber and the two discussed issues relating to climate change, hosting of COP 28, and other related matters. Prior to the bilateral meeting, a Memorandum of Understanding (MoU) on climate action was also signed by the two ministers to establish a framework to facilitate and enhance bilateral cooperation on climate action, and also contribute toward implementing the Paris Agreement.

Following Dr. Al Jaber’s meeting with Yadav, the UAE and India agreed to expand bilateral cooperation towards accelerated climate action and implementation of the Paris agreement, including public-private partnership across renewable power deployment, agriculture efficiency, green hydrogen, sustainable finance, and carbon market development, the official Wam news agency reported.

The UAE-India cooperation in climate aims to support India’s ambition to achieve 450 gig watts (GW) of renewable energy installed capacity by 2030 and aligns with the UAE’s ambitions to expand its low and zero-carbon energy capabilities.

The UAE delegation also met with Indian business leaders to discuss new opportunities, particularly those in decarburization and climate solutions.

The UAE minister also met Foreign Minister S Jaishankar, and Commerce and Industry Minister Piyush Goyal.

Both sides also acknowledged that with the signing of the MoU on climate change, they may explore ways how to strengthen bilateral cooperation on climate action mutually, especially in the areas and activities identified in the agreement.

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News Courtesy: economictimes.indiatimes.com

The UAE-India Comprehensive Economic Partnership Agreement (CEPA

The UAE-India Comprehensive Economic Partnership Agreement (CEPA)

The UAE-India Comprehensive Economic Partnership Agreement (CEPA) enters into force

While the CEPA finds its origins in the India-GCC Framework Agreement on Economic Cooperation signed in 2004, it has finally taken the shape of a bilateral free trade agreement (FTA) between the UAE and India. It is important to note that none of the other GCC countries are parties to the CEPA.

The CEPA makes commitments in multiple areas such as trade in goods, rules of origin, trade in services, customs procedures and trade facilitation, trade remedies, digital trade, economic cooperation, government procurement, intellectual property rights (IPR), investment and trade.

Notable benefits of the CEPA for the UAE and India include:

  1. Lower tariffs for trade in goods

In terms of trade in goods, both countries can now benefit from greater market access through preferential tariff rates due to the reduction or elimination of customs duties on originating goods. 

Under the CEPA a significant amount of originating goods will eventually be subject to 0% customs duties. Some tariff lines will access complete customs duty elimination immediately upon entry into force, others will be eliminated over a period of up to 5, 7, or 10 years, and the rest will be reduced, as compared to the existing customs duty rates. The tariff elimination/reduction schedules and timelines vary depending on the nature of the goods.

UAE goods shipped to India that comply with the Rules of Origin (RoO) will be granted one of the following three statuses: Tariff Elimination Immediate (TEI), Tariff Reduction (TR), or a Tariff Elimination Phased (TEP).

Non-comprehensive examples of the tariff schedule for UAE goods imported into India include:

TEI – customs duty to be made 0% in the first year: Petroleum oils and oils obtained from bituminous minerals crude (2709.00.00); liquefied propane (2711.12.00); and unsorted diamonds (7102.10.00).

TR – customs duty to be reduced: Other unwrought forms of non-monetary gold (7108.12.00) duty rate to be reduced by 1% over five years; bananas, fresh (0803.90) to be reduced to 15% over 10 years; and low-density polyethylene (3901.10.20) duty rate to be reduced by 50% over 10 years. 

TEP – customs duty to reach 0% in 5, 7, or 10 years: Copper weld wire (7408.11.10); base metals or silver, clad with gold (7109.00.00); and plates and sheets of iron or nonalloy steel (7209.16.10) 

Indian goods shipped to the UAE that complies with the RoOs will be granted day-one access to a 0% tariff rate (A), access at year 5 (C), access at year 7 (D), access at year 10 (E), or a Tariff Reduction (TR).

Non-comprehensive examples of the tariff schedule for Indian goods imported into the UAE include:

A: Jeweler and parts of precious metals such as platinum (7113.19.10); petroleum oils and oils obtained from bituminous minerals, crude (2709.00.00); and transmission apparatus incorporating reception apparatus (8525.50.00).

C: Vegetables, fruit, nuts, fruit-peel, and other parts of plants, preserved by sugar (2006.00.00). Non-wired glass (7005.10.00); and collapsible, tubular containers (7612.10.00). 

E: Flat-rolled products of iron or nonalloy steel in coils (7208.10.00); gears and gearing, other than toothed wheels, chain sprockets, and other transmission elements presented separately (8483.40.00). 

TR – customs duty to be reduced: Bars and rolls of iron or non-iron steel, of circular cross-section measuring less than 14 mm in diameter (7213.19); bars and rods of high-speed steel, hot-rolled, in irregularly wound coils (7227.10.00); and bars and rods of silico-manganese steel (7227.20.00).

In addition, some tariff lines are to be excluded from the preferential treatment, prohibited, or included in the special goods category.

For a product to benefit from the preferential tariff treatment, it must comply with the following RoO stipulated by the CEPA:

  1. Be wholly obtained or produced in the territory of the contracting party, or
  2. Have undergone sufficient working or production as per the Product Specific Rules (PSR). The PSR may be expressed as a change in tariff classification and/or specific value-added.

Compliance with the RoOs needs to be supported by a proof of origin, which can be provided by any of these means: a paper certificate of origin, a fully digitalized certificate of origin, or an origin declaration made by an approved exporter.

          3. Simpler customs procedures and trade facilitation

In alignment with the WTO’s Agreement on Trade Facilitation (TFA), the CEPA introduces measures to facilitate cross-border trade of goods and ensure an efficient customs clearance, such as issuing customs rulings prior to import, facilitating cross-border clearance for economic operators, reducing unnecessary regulatory or administrative customs procedures and adopting international best practices of customs management techniques.

In addition to the standard certificate of origin, the CEPA adopts the invoice declaration of origin for approved exporters. The UAE and India have agreed to negotiate and implement future provisions to enable the respective customs authorities to recognize the invoice declaration of origin made by the authorized exporters, removing the need to issue a traditional certificate of origin.

          4. Trade in services. 

Both parties agreed to grant services provided by entities in the other party’s territory open and non-discriminatory environment for cross-border trade. Amongst other things, parties agreed not to maintain or implement measures that limit the services provided by the other party and agreed to work towards mutual recognition of some professional licenses or certifications, such as architecture, engineering, accounting, medical, and nursing.

Both India and the UAE have offered each other market access to the broad service sectors, such as business services, telecommunication services, construction, related services, and educational services.

           5. Bilateral cooperation on pharmaceutical products

The parties have agreed to cooperate in the facilitation of access to finished pharmaceutical products by accepting pharmaceutical products manufactured on the other party’s territory without the need for the previous inspection and with a fast-track approval of product registration, provided that those products have been already approved by the Regulatory Authorities of Australia, Canada, the United Kingdom, Japan, the United States or the European Union. 

Additional provisions adopted by the CEPA

In addition to tariffs elimination and reduction, the CEPA includes other key provisions that will benefit exporters and importers both from India and the UAE, as well as service providers. Some of these benefits include further cooperation in relation to the Agreement on Technical Barriers to Trade, cooperation on information exchange between the two tax authorities, commitments to working towards implementation of the AEO mutual recognition agreement, granting temporary admission for some goods in certain circumstances (such as goods intended for fairs, exhibitions or sports purposes), promotion of trade opportunities for small and medium-sized enterprises, and agreement on transparency and impartiality on government procurement. 

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Requirements under the UAE CT regime

Requirements under the UAE Corporate Tax regime

Requirements under the UAE Corporate Tax regime

Registration and deregistration

A business subject to CT will need to register with the FTA and obtain a Tax Registration Number within a prescribed period. The FTA can also automatically register a business for CT purposes if the person does not voluntarily do so.

Where a business ceases to be subject to the CT (e.g., due to cessation or liquidation of the business), it will need to apply to the FTA to be deregistered for CT purposes within three (3) months from the date of cessation.

The FTA will only deregister a person where the FTA is satisfied that the person has filed CT returns and settled all CT liabilities and penalties (if any) due for all periods up to and including the date of cessation.

Where a person does not apply for deregistration within the time limits or comply with the payment and filing obligations, the FTA may deregister the person based on available information.

Filing, payment, and refund

In order to keep the administrative burden on taxpayers to a minimum, a business will only need to prepare and file one tax return and other related supporting schedules with the FTA for each tax period. There will be no requirement for a business to file a provisional CT return and make advance payments of CT.

Each tax return and related supporting schedules will need to be submitted to the FTA within nine (9) months of the end of the relevant Tax Period. For additional documentary support that may need to be provided to the FTA.

Payments to settle a taxpayer’s CT liability for a Tax Period will need to be made within nine (9) months of the end of the relevant Tax Period. Where a taxpayer can demonstrate that a CT refund may be due, the taxpayer can apply to the FTA to request a refund.

The table below illustrates the CT filing and payment deadlines for businesses with financial year ends of 31 March, 30 June, and 31 December:

Illustrative timetable for CT filing and payment deadlines
  Financial year end    30 June  31 December  31 December
  First Tax Period    1 July 2023 – 30 June 2024    1 January 2024 – 31 December 2024  1 April 2024 – 31 March 2025
  CT return must be filed, and CT payment made, within nine (9) months of the tax period  
  Filing & payment due date    31 March 2025  30 September 2025  31 December 2025

Assessment

The UAE CT regime will be based on a self-assessment principle. This means that a business is responsible for ensuring that the tax return and any supporting schedules submitted to the FTA are correct, complete, and comply with the UAE CT law.

To ensure the integrity of the CT regime, the FTA may review a CT return filed and may issue an assessment within the timeframe prescribed in the Tax Procedures Law.

A taxpayer may challenge an amended assessment issued by the FTA via the processes and procedures outlined in the Tax Procedures Law.

Clarifications

Clarity around how to comply with CT is essential for a well-functioning CT regime. Therefore, where there is uncertainty in relation to a proposed or entered into arrangement or transaction, a business may apply to the FTA for a clarification with regards to the correct or intended CT treatment.

Provided the facts and circumstances outlined in a clarification continue to apply, a clarification would be binding on the FTA.

Documentation requirements

A business will be required to maintain financial and other records that explain the information contained within the CT return and other documents submitted to the FTA. Certain exempted persons will also be required to maintain records to allow the FTA to ascertain the person’s exempt status.

Whether the financial statements of a business are required to be audited by an accredited audit firm is and will continue to be determined by applicable company laws and regulations. However, the UAE CT regime will require a Free Zone Person to have audited financial statements if it wants to benefit from the 0% CT regime.

Transitional rules

The UAE CT regime is not intending to require businesses to restate their balance sheet upon entering the CT regime. Instead, a taxable person’s opening balance sheet for CT purposes would generally be their closing balance sheet for financial reporting purposes for the period that ends immediately before their first tax period begins.

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News Courtesy: Public Consultation Document UAE Corporate Tax

Calculation of taxable income in UAE Corporate Tax

Calculation of taxable income in UAE Corporate Tax

Calculation of taxable income in UAE Corporate Tax

This section sets out the proposed approach to determining the amount of income that will be subject to tax under the UAE CT (corporate Tax) regime.

Basis of calculating taxable income

To reduce complexity and compliance costs, the UAE CT regime proposes to use the accounting net profit (or loss) as stated in the financial statements of a business as the starting point for determining their taxable income.

Using accounting standards provides for a common definition of income, which reduces compliance costs and provides a base that follows international standards. Aligning the calculation of taxable income to accounting profits (where possible and appropriate) limits book-tax differences and prevents businesses from having to maintain two sets of records: one for financial reporting purposes and the other for CT purposes.

The financial statements should be prepared using accounting standards and principles that are acceptable in the UAE and businesses will use their financial accounting period as their (annual) tax period. Where a business does not have a financial accounting period, its default tax period will be the Gregorian calendar year.

Although International Financial Reporting Standards are commonly used in the UAE, consideration is being given to allowing alternative financial reporting standards and mechanisms for determining taxable income to accommodate and reduce the compliance costs for certain taxpayers (e.g., startups and small businesses).

Treatment of unrealized gains and losses

Unrealized gains or losses arise in instances where an asset or liability held by a business has changed in value but no transaction to generate a gain or loss has yet taken place. For example, when a business property increases in value, but the property is not sold, the gain would be unrealized. These gains or losses may be recorded for accounting purposes even though they are not yet realized.

The UAE CT will have specific rules to determine whether an unrealized gain or loss should be taken into account when calculating taxable income. These relate to whether the gain or loss is related to capital items or revenue items.

Capital items are items that have a long-term impact on a business. They include assets, such as machinery, and long-term liabilities, such as loans to buy property. Unrealized gains or losses on capital items are not taken into account when calculating taxable income.

Revenue items are items that have a short-term impact on a business. Revenue assets are items other than capital items and can include items such as the goods a business sells. Unrealized gains or losses on revenue items will need to be taken into account when calculating taxable income.

Exempt income

As discussed in section 4.1, UAE resident companies will be subject to UAE CT on their worldwide income, including capital gains.

However, to avoid instances of double taxation, and to recognize the UAE’s position as an international business hub and leading holding company location, the UAE CT regime will exempt certain forms of income from taxation.

The main exemptions from UAE CT relate to income earned by UAE companies from investments in other companies, and from operations conducted outside the UAE through foreign subsidiaries or foreign branches.

Exemption for dividends and capital gains

In line with many other countries and leading international financial centers, a UAE corporate shareholder will generally be exempt from CT on dividends received, and capital gains earned from the sale of shares of a subsidiary company. The purpose of this so-called participation exemption is to avoid double taxation of corporate profits, first when they are earned by the subsidiary company and second when the profits are distributed to, or the shares in the subsidiary company are sold by, the UAE shareholder company.

The proposed UAE CT regime will exempt all domestic dividends earned from UAE companies, including dividends paid by a Free Zone Person that benefits from the 0% CT regime.

Dividends paid by foreign companies, and capital gains from the sale of shares in both UAE and foreign companies will also be exempt from CT, provided certain conditions are met.

The main condition to benefit from the participation exemption is that the UAE shareholder company must own at least 5% of the shares of the subsidiary company. Further, to prevent income from being shifted to a subsidiary in a no- or low-tax country, the participation exemption will only be available if the foreign subsidiary is subject to CT (or an equivalent tax) at a rate of at least 9%.

Despite benefitting from a 0% CT rate, capital gains on the disposal of shares in a Free Zone Person will be exempt from CT where the Free Zone Person is a holding company and substantially all of its income is derived from shareholdings in subsidiary companies that meet the participation exemption conditions discussed above.

Foreign branch profit exemption

UAE businesses may structure their foreign operations either through a foreign subsidiary or through a foreign branch. A foreign branch would typically constitute a PE in the foreign country and be subject to CT (or an equivalent tax) on its profits in that foreign country.

The main difference between operating abroad through a foreign subsidiary or a foreign branch is that a subsidiary is a separate legal entity, with its own books and records, and transactions between the UAE parent company and its foreign subsidiary would generally be clearly documented and recorded.

The main difference between operating abroad through a foreign subsidiary or a foreign branch is that a subsidiary is a separate legal entity, with its own books and records, and transactions between the UAE parent company and its foreign subsidiary would generally be clearly documented and recorded.

Recognizing the potential complexities associated with attributing income and expenses to foreign branches, UAE companies can either (i) claim a foreign tax credit for taxes paid in the foreign branch country, or (ii) elect to claim an exemption for their foreign branch profits.

The election to claim a branch profit exemption is proposed to apply to all foreign branches of the UAE Company and will be irrevocable. An exemption for foreign branch profits may not be available where the foreign branch is not subject to a sufficient level of tax in the foreign jurisdiction in which it is located.

Other exempt income

As a major logistics center and international travel hub, the UAE CT regime will exempt income earned by a non-resident from operating or leasing aircraft or ships (and associated equipment) used in international transportation, provided the same tax treatment is granted to a UAE business in the relevant foreign jurisdiction under the reciprocity principle.

Expense deduction limitations

The calculation of taxable income will largely follow accounting rules, but the UAE CT regime will disallow or restrict the deduction of certain specific expenses. This is to ensure that relief can only be obtained for expenses incurred for the purpose of generating taxable income and to address possible situations of abuse or excessive deductions.

Interest capping rules

While some minimum level of share capital or equity reserves may be required under UAE company regulations, business owners will generally have flexibility as to how they finance their business.

Interest and other similar financing costs are considered a cost of doing business and will accordingly be deductible for UAE CT purposes. However, the deductibility of interest and other similar financing costs could give rise to opportunities to erode the UAE CT base and arbitrage the UAE CT regime unless appropriate measures are in place (see below). An obvious example of tax arbitrage would include the reduction of taxable profits through the use of deductible interest payments, where the recipient of the interest income is not taxed (e.g., an individual shareholder or a Free Zone Person).

To prevent the different tax treatment of equity and debt from being exploited through the use of excessive levels of debt, the proposed UAE CT regime will cap the amount of net interest expense that can be deducted to 30% of a business’s earnings before interest, tax, depreciation, and amortization (EBITDA), as adjusted for CT purposes. This is in line with the interest limitation rules proposed by Action 4 of the OECD’s Base Erosion and Profit Shifting project which have been implemented by countries around the world.

To reduce the administrative burden, businesses may be allowed to deduct up to a certain amount of net interest expenditure (safe harbor or de minimis amount) irrespective of the interest deductibility limit based on the EBITDA rule.

Recognizing that different industries have different capital needs and risk profiles, the interest capping rules will not apply to banks, insurance businesses, and certain other regulated financial services entities. Additionally, the interest capping rules will also not apply to businesses carried on by natural persons.

Consideration is being given to allowing businesses that are a part of a consolidated group to apply a different interest capping threshold by reference to the group’s overall position.

In addition to requiring interest paid on related party borrowings to be at arm’s length, where such borrowings are used for certain specific intra-group transactions (e.g., to pay a dividend or capitalize a group company), related party interest will only be deductible if there is a valid commercial reason for obtaining the loan. A valid commercial reason will be considered to exist if the related party lender is subject to CT (or an equivalent tax) of at least 9% on the interest income earned.

Non-deductible expenses

As discussed in previous sections, related party payments made to a Free Zone Person that is taxed at 0% on receipt of the income will not be deductible for CT purposes. However, the related party will be allowed to claim a deduction if the payment is attributed to a mainland branch of the Free Zone Person.

Businesses will be allowed to deduct up to 50% of the expenditure incurred to entertain customers, shareholders, suppliers, and other business partners, to acknowledge that these types of expenses often also have non-business or personal elements.

No deduction will be allowed for certain specific other expenses such as administrative penalties, recoverable VAT, and donations paid to an organization that is not an approved charity or public benefit organization.

Losses

Businesses typically have variations in profit levels over time, and it is not uncommon for a business to incur losses during the start-up phase or because of market circumstances.

A fundamental principle behind the UAE CT regime is that CT is meant to be paid on the total profit of a business over its entire life cycle, as opposed to a single financial period.

Accordingly, and in line with international best practices, a business will be able to offset a loss incurred in one period against the taxable income of future periods, up to a maximum of 75% of the taxable income in each of those future periods.

Tax losses can be carried forward indefinitely provided the same shareholder(s) hold at least 50% of the share capital from the start of the period a loss is incurred to the end of the period in which a loss is offset against taxable income. If there is a change in ownership of more than 50%, tax losses may still be carried forward provided the same or similar business is carried on by the new owners.

The continuity of shareholder or business requirements does not apply to businesses that are listed on a recognized stock exchange.

No tax-loss relief will be available for the following losses:

  • Losses incurred before the effective date of CT;
  • Losses incurred before a person becomes a taxpayer for UAE CT purposes;
  • Losses incurred from activities or assets which generate income that is exempt from UAE CT; or
  • Losses incurred by a Free Zone Person that is not attributable to a PE in the mainland

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News Courtesy: Public Consultation Document UAE Corporate Tax

UAE Corporate Tax Guidelines

UAE Corporate Tax Guidelines

New UAE Corporate Tax Guidelines

What is Corporate Tax?

Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses.

Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.

Why is the UAE introducing CT?

A competitive CT regime based on international best practices will cement the UAE’s position as a leading global hub for business and investment, and accelerate the UAE’s development and transformation to achieve its strategic objectives

Introducing a CT regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices

Is the UAE the first country to introduce CT?

Most countries in the world have a comprehensive CT regime, including most of the GCC Member States

When will the UAE CT regime become effective?

The UAE CT regime will become effective for financial years starting on or after 1 June 2023

Examples:

  • A business that has a financial year starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE CT from 1 July 2023 (which is the beginning of the first financial year that starts on or after 1 June 2023)
  • A business that has a (calendar year) financial year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE CT from 1 January 2024 (which is the beginning of the first financial year that starts on or after 1 June 2023)

Will UAE CT be applicable to businesses in each Emirate?

The UAE CT is a Federal tax and will therefore apply across all Emirates

What will be the role of the Federal Tax Authority?

The Federal Tax Authority will be responsible for the administration, collection, and enforcement of UAE CT

What will be the role of the Ministry of Finance?

The Ministry of Finance will remain the ‘competent authority’ for purposes of bilateral/multilateral agreements and the international exchange of information for tax purposes

Scope and rate

Who will be subject to UAE CT?

UAE CT will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation

All activities undertaken by a legal entity will be deemed “business activities” and hence be within the scope of UAE CT

How do you determine whether an individual has a “business” that will be within the scope of UAE CT?

This would generally be done by reference to the individual having (or being required to obtain) a business license or permit to carry out the relevant commercial, industrial, and/or professional activity in the UAE

How do you determine the business profit/income that will be subject to UAE CT?

The taxable income will be the accounting net profit of a business, after making adjustments for certain items to be specified under the UAE CT law

The accounting net profit of a business is the amount reported in the financial statements prepared in accordance with internationally accepted accounting standards

What will the UAE CT rates be?

The CT rates are:

  • 0% for taxable income up to AED 375,000;
  • 9% for taxable income above AED 375,000; and
  • a different tax rate for large multinationals that meet specific criteria set with reference to ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project

What is meant by “large” multinationals?

A multinational corporation is a corporation that operates in its home country, as well as in other countries through a foreign subsidiary, branch, or another form of presence/registration. Merely earning income from outside its home country without a foreign presence or registration would not make a business a multinational corporation

In the context of the global minimum effective tax rate as proposed under ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project,” large” refers to a multinational corporation that has consolidated global revenues in excess of EUR 750m (c. AED 3.15 bn)

Will an individual’s salary income be subject to UAE CT?

UAE CT will not apply to an individual’s salary and other employment income (whether received from the public or private sector)

Will an individual who has a commercial license to carry out business in the UAE be subject to UAE CT?

Business income earned under a commercial license will be within the scope of UAE CT

Will an individual who invests in UAE real estate be subject to UAE CT?

The investment in real estate by individuals in their personal capacity should not be subject to UAE CT provided the individual is not required to obtain a commercial license or permit to carry out such activity in the UAE

Will an individual be subject to CT on investment returns?

Individuals will not be subject to UAE CT on dividends, capital gains, and other income earned from owning shares or other securities in their personal capacity

Will the income earned by a freelance professional be subject to UAE CT?

UAE CT will generally apply to income earned from activities carried out under a freelance license/permit, albeit no CT will be payable unless the annual net income of the freelance professional exceeds AED 375,000.

Will income earned by an individual from bank deposits be subject to UAE CT?

Interest and other income earned by an individual from bank deposits or saving schemes will not be subject to UAE CT

If a business has earned a taxable income of AED 400,000 in a given financial year, what will be the UAE CT amount payable?

The CT liability will be calculated as follows:

  • Taxable income of AED 0 – AED 375,000 at 0% = AED 0
  • Portion of taxable income exceeding AED 375,000 (i.e. AED 400,000 – AED 375,000 = AED 25,000) at 9% = AED 2,250

The UAE CT liability for the year will be AED 0 + AED 2,250 = AED 2,250

The final amount of UAE CT payable will be reduced by any foreign taxes incurred on the relevant income (see below under ‘Tax Credits’ section)

Will anyone be exempt from UAE CT?

Businesses engaged in the extraction of natural resources will remain subject to Emirate level corporate taxation and be outside the scope of UAE CT

Information on other UAE CT exemptions and exclusions will be provided in due course

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India UAE sign Comprehensive Trade Agreement

India, UAE sign Comprehensive Trade Agreement

India, UAE sign Comprehensive Trade Agreement

India and the United Arab Emirates on Friday signed a Comprehensive Economic Partnership Agreement (CEPA) covering goods, services, and digital trade, among others, that will allow 90% of the country’s exports duty-free access to the Emirates.

The CEPA is likely to benefit about $26 billion worth of Indian products that are currently subjected to 5% import duty by the UAE, India’s third-biggest trading partner behind the US and China.

The bilateral trade pact is India’s first in the region and the first comprehensive trade agreement with any country in a decade.

“It is expected that the CEPA will lead to an increase in bilateral trade from the current $60 bn to $100 bn in the next 5 years,” the government said in a statement after the India-UAE Virtual Summit attended by Prime Minister Narendra Modi and the crown prince of Abu Dhabi HH Sheikh Mohammed bin Zayed Al Nahyan.

“HH @MohamedBinZayed and I believe that the India-UAE CEPA signed today will be a game-change in our economic ties,” PM Modi tweeted after the virtual summit.

Through the pact, Indian exporters will also get access to the much larger Arab and African markets.

India was the UAE’s largest export destination and second-largest trade partner in 2019 and the eighth biggest investor with a cumulative foreign direct investment of nearly $11 billion so far.

“Both nations are entering a golden era of economic & trade cooperation with the signing of India-UAE CEPA,” commerce and industry minister Piyush Goyal tweeted.

India’s labor-intensive and employment-generating industries such as gems and jewelry, textiles, leather, footwear, sports goods, furniture, pharmaceuticals, medical devices, and automobiles are expected to gain the most from the pact.

The UAE is offering overall duty elimination on over 97% of its tariff lines corresponding to 99% of India’s exports in value terms. Separately, zero duty on an additional 9% of the trade value on products such as electronics, chemicals and petrochemicals, ceramics, and machinery, is likely later in 5-10 years.

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News Courtesy: economictimes.indiatimes.com

The tax system in the United Arab Emirates

The tax system in the United Arab Emirates

The tax system in the United Arab Emirates

The tax system in the United Arab Emirates – or rather, the lack of taxes paid – is one of the main draws to the region for many ex-pats. For instance, there is no income tax paid by employees, and no system for corporate and inheritance taxes, among others.

Until January 2018, there was also no VAT. This tax on goods and services sold was introduced relatively low, at 5%. There’s also an excise tax that is levied on specific products deemed by the government to be harmful to human health or the environment, such as energy drinks and tobacco.

Federal taxes in the UAE

Income tax

The UAE does not levy a tax on income. There is, therefore, no need for an income tax return in the UAE as there is no applicable individual tax within the country. The same also applies to freelancers and self-employed individuals who are residents of the Emirates.

Individual tax

Employees in the UAE who are GCC nationals (this includes the UAE) are subject to a social security regime of 17.5%. Those who are UAE nationals pay 5% (with an automatic deduction off their paycheck) and the employer pays the further 12.5%. Social security obligations also apply to employees of companies and branches registered in a free trade zone (FTZ). Also, residents of other GCC nations may be subject to different social security contributions relative to their home country. Conversely, non-GCC nationals are not subject to social security in the United Arab Emirates.

Corporate tax

Corporate taxes are only levied on oil companies and foreign banks in the UAE. However, there are 45 free zones in the country; businesses registered in the United Arab Emirates are exempt from paying tax for a period that can be extended. There are no capital gains taxes unless the company is taxable under another income tax.

Corporate tax rules are due to change from 1 June 2023, when the plan is to introduce a federal corporation tax at 9% for businesses with net profits of AED 375,000 or more.

Double taxation

The United Arab Emirates is expanding its Double Taxation Agreements (DTA) and Bilateral Investments Treaties (BIT) network to encourage strategic global partnerships. The UAE has secured approximately 193 DTAs and BITs with the purpose of exempting or reducing taxes on investments and profits from direct and indirect taxes.

Tourist facility tax

Restaurants, hotels, and resorts (among others) may charge the following taxes:

  • 10% on the room rate
  • Service charge (10%)
  • Municipality fee (10%)
  • City tax (6–10%)
  • Tourism fee (6%)

Property transfer tax

A transfer charge applies to the transfer of property in the UAE. This varies by Emirate; it is 4% in Dubai, for example. Although the buyer and seller both share the burden of this, the buyer generally pays the transfer fee.

Inheritance tax

There is no regime for inheritance tax. If there is no will, however, inheritance is dealt with according to Islamic Shari’a principles.

Regional taxes in the UAE

Free trade zones

There are free-trade zones in the UAE that have special tax, customs, and import regimes within themselves. In fact, there are more than 40 zones throughout the Emirates. Within these special areas, companies can be exempt from paying corporate tax for up to 50 years and they have 100% exceptions on import and export taxes.

Tourism fees per Emirate

Hotel charges vary by Emirate. In Dubai, there is a Tourism Dirham Fee per room for each night of occupancy (for up to 30 nights) that ranges from AED 7 to AED 20. In general, this depends on the grade of the hotel. Additionally, Abu Dhabi charges a 4% fee onto hotel bills and charges AED 15 per night, per room. Ras Al Khaimah hotels also charge a tourism fee per room per night of AED 15.

Rental tax

Taxes on rented properties vary between the Emirates. In Dubai, residential tenants pay 5% of their annual rent in rental tax, while 10% is added onto commercial tenants. However, in Abu Dhabi, UAE citizens are not taxed on their properties, but their ex-pat counterparts pay 3%. Furthermore, in Sharjah, all tenants pay a rental tax of 2%.

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Ahmed Saleh Al Nuaimi Auditors and Accountants is a unique, high-spirited team of Certified Public Accountants ,  Chartered Accountants ,  Certified Management Accountants and Auditors making creative and innovative contributions to our clients and our community. The insights and quality services we provide help build trust and confidence among our clients. We offer an integrated array of specialized services including Audit, Accounting,Tax, Consulting and Advisory

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