UAE has decided to introduce corporate tax on taxable income with effect from financial year commencing on or after 1st June 2023

1. Reframing Business for Corporate Tax
in UAE
An overview of corporate tax in UAE
UAE has decided to introduce corporate tax on taxable income with effect from financial
year commencing on or after 1st June 2023. Corporate tax will be applicable at a rate of
9% for taxable income exceeding AED 375, 000.
It’s clear that UAE has no intention to bring small business enterprises into corporate
tax brackets. Although the introduction of corporate tax was really shocking and
surprising, it was quite expected because MOF has already introduced VAT, Excise
duty, ESR etc recently.
As of now, UAE has corporate tax regime having:
 20 % tax on foreign banks
 Up to 55 % tax for business entities engaged in oil production and explorations
Why corporate tax in UAE?
Through the introduction of corporate tax UAE intends to achieve the following.
 Cement the UAE’s position as a leading global hub for business
 Accelerate the UAE’s development and transformation to achieve its strategic
objectives.
 Reaffirm the UAE’s commitment to meeting international standards for tax
transparency and prevent harmful tax practices.
We are already familiar with the corporate tax updates published by MOF (Ministry of
finance). Every business entity should assess themselves, whether they have sufficient
infrastructure before implementation of corporate tax. It is expected that UAE CT
decree-law and executive regulation will be announced soon but taxpayers should keep
businesses ready for final implementation so that the entity has time to conduct
implementation and adapt to the changes.
This article provides you the basic review that an entity should consider before
Implementation.

2. Business and finance Impact assessment
Firstly, every business entity should conduct impact assessment, whether they come
under the brackets of UAE CT or not. If an entity falls within the brackets, then they
need to consider how they are going to be affected and what are the changes and
updates required in current business structure, accounting system and transfer pricing
policy etc.
Business Level Impact
This is the initial stage before the implementation of corporate tax. Taxpayers will have
to estimate their potential future tax based on estimated profits after considering the
relevant factors such as exemptions, adjustments, and deductions etc. Finance impact
analysis will help taxpayers to conduct financial planning and estimate cash outflows.
Financial statement level impact
UAE CT has an accounting impact on financial statements and auditors need to
consider the same. For eg: recognition, measurement, and disclosures of taxes on
income (IAS 12 -Income taxes) and IAS 37 Provisions, Contingent Liabilities and
Contingent Assets as per applicable financial reporting standards will have to be
considered.
Finance and tax teams shall coordinate with other departments as well as external
auditors to have clear picture about the impact.
Planning and Designing
Business model restructuring
As per the current information from MOF, freezone entities come under purview of
corporate tax. Freezones are required to register and file return, but the UAE CT regime
will continue to honour the CT incentives currently being offered to free zone
businesses that comply with all regulatory requirements and that do not conduct
business with mainland UAE. So, it’s possible for free zone entities that conduct
mainland transactions to be taxed. Hence, enterprises should reconsider their existing
business structure and review how the taxpayer can reap benefits as tax incentive.
Why Tax grouping under corporate tax?
Enterprises have the option to register as tax groups just like VAT tax groups, but we
expect that groups will not be same as VAT Tax groups, so that entity will have an
option to register as tax group in corporate tax separately. Administrative expense can

3. be minimised to some extent as only one return is required to be filed annually for one
tax group. Moreover, tax loss of one company is eligible for set-off against taxable
income of another company in same group, as corporate tax rate is applied on
consolidated basis.
As per the information, tax losses from one Group Company may be used to offset
taxable income of another group company provided certain conditions are met. While
taking the decision regarding the tax groups, current and estimated financial results
must be considered as it has short term as well long-term impact.
Are offshore companies subject to UAE CT?
There is no information related to taxability of offshore companies. Hence, we expect
that offshore companies come under purview of UAE CT.
Accounting and process re-structuring
A well-equipped accounting platform that supports to generate corporate tax reports is
mandatory for the smooth functioning because corporate tax is levied on taxable profit,
not on the accounting profit. Accounting profit is the amount reported in the financial
statements prepared under internationally accepted accounting standards.
The taxable income will be the accounting net profit of a business after adjusting certain
items to be specified under the UAE CT law. Hence the accounting system should have
capability to identify those transactions.
Non-Deductible expenses expected generally include:
 Fines and penalties
 Expenses related to violation of law
 Capital expenditure
 Personal expenditure
 Managerial remuneration (more than limits specified under law)
Further, if a freezone entity is conducting business in freezone as well as mainland,
accounting system should have the ability to apportion the transaction of mainland and
freezone and obtain financial results out of it. So, business enterprise should have the
resources including human and IT environment that will cope with requirements of UAE
CT law.

4. Transactions outside the scope of UAE CT
Certain transactions are outside the purview of UAE CT.so the same transactions
should be excluded while computing taxable profits. These include:
 Dividends and capital gains earned by a UAE business from its qualifying
shareholdings.
 Qualifying intra-group transactions and reorganizations, provided the necessary
conditions are met.
 Foreign investor’s income from dividends, capital gains, interest, royalties, and
other investment returns.
 Businesses engaged in the extraction of natural resources will remain subject to
Emirate level corporate taxation.
As per current information from MOF, banking operation will be subject to UAE CT, so
further details regarding emirates level taxation will be provided in due course.
Documentation apart from books of accounts
When it comes to documentation, apart from maintaining the books of accounts, entity
should maintain appropriate documents in relation to computation of tax liability, related
party transactions, and determination of arm’s length prices etc. As of now it remains
uncertain regarding the supporting documents required.
Remodelling Transfer pricing policy
Transfer pricing has a significant impact in corporate tax regime (i.e., fixation of arm’s
length price and its documentation etc). The arm’s length price for a controlled
transaction can be determined by selecting and applying the most appropriate transfer
pricing method. The regulations will specify the methods and may also provide an
option to use methods other than approved Transfer Pricing methods which have
sufficient documentations as per law.
As per the news published by Ministry of finance, businesses will need to comply with
transfer pricing rules and documentation requirements set with reference to the OECD
Transfer Pricing Guidelines.
Three Tier Model under OECD Guidelines
As per the OECD guidelines on transfer pricing, jurisdiction basically adopt a three tired
approach to transfer pricing documentation consisting of;

5.  Master file – containing standardised information of all MNE group members.
 Local file – material transactions of local taxpayers.
 Country by country report– global allocation of the MNE groups income and
tax paid.
It is expected that transfer pricing rules and regulation will be published as a part of
UAE CT law. Business entity having related party transaction should keep information
and documents as per the laws and regulations and restructure the transfer pricing
policy in line with UAE CT Law.
Availability of resources
Every business entity should assess the current human resource in finance team,
whether business has an in house or outsourced tax specialist having knowledge about
international taxation and transfer pricing rule, to handle the implementation of
corporate tax.
Implementation and ongoing
Every enterprise must register and file the returns on an annual basis unless specifically
exempted under UAE CT law. So, no provisional return or advance tax payment is
required.
As of now, taxpayers have enough time to plan and implement changes in ongoing
business and should be prepared to adapt these changes in the current system.

6. Get Free Consultation
Reframing Business for Corporate Tax
in UAE
HLB HAMT
Level 18, City Tower-2,
Sheikh Zayed Road
PO Box 32665
Dubai – United Arab Emirates. Tel: +971 4 327 7775
E-mail: dubai@hlbhamt.com
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