The UAE's Ministry of Finance has cancelled “economic substance” reporting requirements for companies that have a financial year ending after December 31, 2022, to help them focus on compliance with the UAE corporate tax system.
The new move came following amendments to Cabinet Decision No. 57 of 2020 on economic substance requirements, the Ministry of Finance said in a statement on Monday.
“The amendment aims to enhance efficiency and tax compliance across the country, ensuring accurate application of tax legislation by all entities subject to it,” said Younis Al Khoori, Undersecretary of the Ministry of Finance.
“This step is also part of the ministry’s ongoing efforts to improve the tax system's efficiency and attract further investments.”
The UAE introduced the federal corporate tax with a standard statutory rate of 9 per cent starting from the financial year beginning on or after June 1, 2023.
It brought the income of companies exceeding Dh375,000 ($102,100) within the taxable bracket. Taxable profits below that level will be subject to a tax of zero per cent.
The Ministry of Finance also confirmed in May last year that business owners in the country would be subject to corporate tax only if their turnover in a calendar year exceeds Dh1 million, ensuring that only business or business-related activity income is taxed.
While companies are no longer required to submit economic substance notifications or reports for financial years ending after December 31, 2022, they do remain responsible for fulfilling compliance obligations for previous years and paying any penalties imposed by the Federal Tax Authority (FTA), the Ministry of Finance said.
The latest decision came after the UAE last month announced a deadline extension for corporate tax returns and payments for some entities.
Businesses with short tax periods ending on or before February 29, 2024, can now file their returns and make payments by December 31, 2024, the FTA said at the time.
The decision applies to businesses that were formed, established or recognised on or after June 1, 2023, and have a financial year ending on or before February 29.