How UAE businesses have prepared for corporate tax

Federal Tax Authority will be responsible for the administration, collection and enforcement of the tax

The Ministry of Finance has brought the income of companies exceeding $102,000 within the taxable bracket. Bloomberg

Businesses across the UAE are preparing for the introduction of the federal corporate tax, which takes effect from June 1.

It will be the most significant tax after the UAE introduced the 5 per cent value added tax in 2018 on a majority of goods and services as part of its plans to diversify the economy and reduce its dependence on hydrocarbons.

The new corporate tax will be enacted at a standard statutory rate of 9 per cent for companies whose financial year begins on or after June 1.

The Ministry of Finance brought the income of companies exceeding Dh375,000 ($102,000) within the taxable bracket.

Taxable profits below that threshold will be subject to a 0 per cent rate.

The National takes a closer look at how businesses in the UAE have prepared for the coming tax.

“Damac is in the process of assessing the impact of corporate tax on its operations and is preparing its reporting, data management and accounting systems in order to achieve a position of full compliance with [corporate tax] reporting obligations,” said Niall McLoughlin, senior vice president at the Dubai-based property developer.

The UAE government announced the introduction of corporate tax in January 2022 as part of efforts to give companies enough time to prepare for it.

The Ministry of Finance has been issuing several decisions related to the tax in recent weeks to provide more clarity.

Last week, it issued three new ministerial decisions that explained exemptions and the preparation of financial statements before the introduction of corporate tax.

“We have strengthened the due diligence process in our accounting system to weed out any anomalies,” said Rizwan Sajan, founder and chairman of Danube Group, a building materials company.

“We are conducting impact analysis for the group and adopting necessary changes, making sure that we are ready for the smooth implementation of corporate tax.”

The Federal Tax Authority, responsible for the administration, collection and enforcement of the tax, opened up the EmaraTax digital tax services platform for public joint stock companies and private companies to register from May 15.

“Early corporate tax registration will allow ample time for companies and businesses to comply with their legal obligations,” the FTA said.

While the new tax regime is business friendly, it is important for companies to “plan early to ensure a smooth transition into it”, said Vince Cook, chief executive of National Bank of Fujairah.

“We recently ran a series of knowledge events across the UAE in order to equip our clients with the actionable information, insights and guidance they need to manage this process.”

Faisal Anwar, group chief financial officer of Al Ansari Financial Services, said: “We believe we have adequately prepared ourselves for the implementation of corporate tax.

“This preparation includes thorough research, consultations with tax experts, internal system changes and assessments to ensure we comply with all legal obligations and responsibilities.”

Under the law, any company that adopts a fiscal year starting on June 1, 2023, and ending May 31, 2024, will be subject to corporate tax starting on June 1, with the first tax return filing likely to be due towards the end of 2024.

However, if a company has a calendar year running from January 1, 2023, to December 31, 2023, it will be subject to corporate tax starting on January 1, 2024, and its filing is likely to be due towards mid-2025.

“Since we operate on a January-December accounting cycle, the new rules are applicable to us only from January 2024,” a representative from Lulu Financial Holdings told The National.

“Being a holding company, we need to comply with transfer pricing rules and towards this we are using this time to determine tax residency, organise financial records and set up proper internal accounting and audit practices. We will be registering with the Federal Tax Authority pending the completion of our internal assessments.”

Similarly, a representative from Emirates airline said that since its financial year cycle starts on April 1, the full impact of the UAE corporate tax will only be reflected in the company’s 2024-2025 financial reporting.

“Our preparations for the implementation of corporate tax in the UAE are well under way," the representative said. “We’ve been working closely with our auditors PwC to ensure that our group is tax-compliant from the effective date.”

The Ministry of Finance recently outlined transitional rules on how a company can adjust its opening balance sheet under the new law.

Businesses can adjust their tax treatment of certain assets and liabilities before the corporate tax law comes into effect on June 1.

The decision applies to immovable property, intangible assets and the financial assets and liabilities held by businesses.

Retailer Eros Group has taken “proactive steps to ensure compliance with the new tax framework”, said Mohammad Badri, director at Eros Group.

“Among the key measures undertaken is the establishment of a dedicated tax department comprising highly skilled professionals with expertise in taxation and corporate law,” he added.

“Additionally, Eros Group has engaged leading tax advisers and consultants to provide expert guidance and support throughout the implementation phase. Eros Group has also conducted comprehensive training programmes to educate its employees about the implications of the new tax regime.”