Synopsis of Business Restructuring Relief Guide

Synopsis of Business Restructuring Relief Guide

On April 17, 2024, the Federal Tax Authority (‘FTA’) released a Corporate Tax Guide concerning “Business Restructuring Relief” (‘Relief’), with the aim of offering comprehensive direction on the Relief provisions outlined in the Corporate Tax Law (‘CT Law’). This guide is crafted to furnish readers with a broad understanding of the Business Restructuring Relief available under Article 27 of the UAE Corporate Tax Law. It encompasses an overview of the following aspects related to the Relief:  

  • Transactions falling within the Relief’s scope, 
  • Eligibility criteria for the Relief, 
  • Consequences of electing for the Relief, 
  • Circumstances when the relief will be clawed back and consequences of clawback of the relief, 
  • Compliance prerequisites, and 
  • Interplay with other provisions of the UAE Corporate Tax Law. 

The key highlights of the Guide are outlined below: –

General Aspects: 

The Corporate Tax Law includes provisions to eliminates the corporate tax implications of specific transactions involved in business restructuring or reorganization. Typically, such transactions like mergers or demergers could trigger taxable gains or losses, even without a change in ultimate ownership or if the original owners maintain a stake in the restructured entity. To facilitate restructuring for valid commercial reasons, Business Restructuring Relief under Article 27 of the Corporate Tax Law enables certain restructuring transactions to occur without tax consequences. However, this relief is contingent upon meeting specified conditions and requires the Transferor to elect for its application. 

Applicability of Business Restructuring (BR) Relief

BR Relief is specifically applicable in two scenarios: – 

  • The first category is where there is a transfer of an entire business or an independent part of the Business from one Taxable Person to another. 
  • The second category is where there is a transfer of an entire business from one or more Taxable Persons to another, and the Transferor then ceases to exist.

Consideration for transfer –

1. One of the conditions for Business Restructuring Relief on the transfer of a Business or an independent part of a Business is that the consideration for the transfer is to be received by the Transferor. .

  • As an exception, a transfer will still be considered to meet the conditions for the Business Restructuring Relief if the consideration is received by a Person that has a direct or indirect ownership interest of at least 50% in the Transferor. The shareholder of the Transferor who can receive the consideration for a transfer within the framework of Business Restructuring Relief can be a juridical person or a natural person and is not required to be a Taxable Person . 

2. If payment in forms other than shares or ownership interests, like cash, is made, the transfer remains eligible for Business Restructuring Relief provided that the Market Value of this alternative consideration does not exceed the lower of the following-  

  • the net book value of the assets and liabilities transferred, or  
  • 10% of the nominal value of the issued ownership interest 

Consideration for transfer –

For the relief to apply, all criteria must be met:

  • The transfer must comply with the UAE legislation. 
  • Both the transferor and transferee must be either resident persons or a non-resident but with a permanent establishment (PE) in the UAE. 
  • Neither party can be an exempt person or a Qualifying Free Zone Person (QFZP). 
  • The Financial Year and accounting standards of both persons must align. 
  • The transfer must be undertaken for valid, non-fiscal commercial reasons that reflect an economic reality. 

Note: There is no condition in respect of the ownership of the Transferor or the Transferee. Thus, the relief covers Business restructuring transactions where a Business is transferred from one Related Party to another and also where the Business restructuring is between third parties.

Exceptions to BR Relief:

  • BR Relief is not available for transfers between a Permanent Establishment in the UAE and the head office since a Permanent Establishment and its head office are the same Person. 
  • BR Relief is not available if a Non-Resident Person transfers or is transferred a Business or an independent part of a Business which is not attributable to a Permanent Establishment in the UAE. 
  • BR Relief is not available for Resident Person that elects for Small Business Relief. 

Consequences of electing for BR Relief:

  • For the Transferor: -As the Transfer of assets and liabilities is at net book value, there will be no taxable gain or loss for the Transferor. 
  • For Transferee:  
    • In cases other than realisation- The Transferee shall exclude depreciation, amortisation or other change in the value of the transferred assets and liabilities to the extent that they relate to the gain or loss that arose to the Transferor and were not recognised as a result of the Business Restructuring Relief being applied. 
    • In cases upon realization – the Transferee will need to include any amount that has not been recognised for CT purposes. 

Transfer of Tax Losses

Where a Business or independent part of a Business is transferred on a no gain or loss basis, any unutilised Tax Losses incurred by the Transferor in Tax Periods before the restructuring transaction, can be carried forward and are considered as Tax Losses of the Transferee, provided the Transferee continues to conduct the same or a similar Business or Business Activity as the Transferor conducted before the restructuring transaction. 

Clawback of the BR Relief – 

  • Business Restructuring Relief shall not apply if any of the following circumstances occur within two years from the date of transfer :- 
    • The shares or other ownership interests in the Transferor or the Transferee are sold, transferred or otherwise disposed of, wholly or partially to a Person that is not a member of the Qualifying Group. 
    • There is a subsequent transfer or disposal of the Business or the independent part of the Businesses originally transferred. 
  • The gain or loss on the transfer shall be included in the taxable income of the Transferor in the Tax period in which clawback is triggered. While calculating this gain or loss, market value of assets and liabilities as on the date of the business restructuring will need to be considered, even if this market value if different on the date of the clawback being triggered. 

Other Key Takeaways:– 

  • Transferor has to make election for application of BR Relief which implies that BR Relief is not automatic. 
  • BR Relief can also apply if assets or liabilities are transferred from one Permanent Establishment in the UAE to another Permanent Establishment in the UAE, if the relevant conditions are met. 
  • BR Relief can also apply for a Transferor or Transferee that is a Free Zone Person but not a Qualifying Free Zone Person. 
  • If Transferor and Transferee follow the same Accounting Standards, they may follow different accounting policies, provided that such policies are permitted under the relevant Accounting Standards. 
  • Both the Transferor and the Transferee are required to maintain a record of the agreement to transfer the asset or liability and evidence of the value. 
Download Synopsis of Business Restructuring Relief Guide

Highlight of PCD on R&D incentive

Highlight of PCD on R&D Incentive
Highlight of PCD on R&D Incentive

On 19th April 2024, The Ministry of Finance (MoF) has initiated a public consultation regarding the potential introduction of Research and Development (R&D) tax incentives under the Corporate Tax Law. The aim is to foster innovation, competitiveness, and economic diversity. This consultation paper is split into the consultation questionnaire and guidance paper. 

Key highlights of the consultation are as follows:

  • Purpose and Aim: The UAE Government recognizes the significance of R&D in driving innovation and aims to support businesses by potentially introducing an R&D Tax Incentive under the Corporate Tax Law. The consultation seeks feedback to design an effective incentive accessible to a wide range of businesses. 
  • Design Features: The consultation seeks input on various aspects of the potential R&D tax incentive, including defining R&D, determining qualifying businesses and activities, identifying eligible expenditure, selecting incentive types, managing unutilized benefits, and establishing administrative measures. 
  • Consultation Process: Stakeholders are invited to provide feedback through a consultation questionnaire and this includes a range of questions to understand more about the way in which R&D is currently and/or anticipated to be conducted in your business, what the potential R&D Tax Incentive should cover and how the potential R&D Tax Incentive should be delivered and administered. 

Alongside the consultation questionnaire, a separate Guidance Paper has been prepared which provides details on the internationally recognized definition of R&D provided in the Organization for Economic Co-operation and Development’s (‘OECD’) Frascati Manual. 

The Keys highlight of the Guidance paper are outlined below:- 

  • R&D Definition: R&D is characterized by systematic, creative processes aimed at advancing human, cultural, and societal knowledge. It encompasses basic research, application-oriented research, and experimental research. Key R&D characteristics are as outlined: 
    • Novelty: Creating new knowledge or improving existing concepts. 
    • Creativity: Involves human intervention beyond routine changes. 
    • Uncertainty: The outcome cannot be precisely estimated. 
    • Systematic: Conducted in a planned manner with documented processes. 
    • Transferability & Reproducibility: Results should be transferable and reproducible by other researchers. 
  • Common R&D Activities: Activities such as transforming research outcomes, modifying product components or processes, conducting tests, and designing tools with new technologies are considered R&D. 
  • Excluded Activities: Certain engineering and scientific activities, as well as those related to scientific and technical information services, testing and standards unification, feasibility studies, policies, funding management, and indirect support, are excluded from R&D. 
  • Identification of R&D Projects: Criteria for identifying R&D projects include project objectives, novelty, implementation methods, general applicability of outcomes, staff involvement, and classification of research projects and institutions. 

Overall, the R&D tax incentive seeks to aid the private sector by reducing the effective cost associated with conducting research and development, with the goal of making it accessible to a broad array of businesses in the UAE. Stakeholders are urged to offer concise and transparent feedback by May 14, 2024.

Download Key highlight of PCD on R&D Incentive

Synopsis of Qualifying Group Relief Guide for UAE

On 3 April 2024, the Federal Tax Authority (‘FTA’) published a Corporate Tax Guide on “Qualifying Group Relief” (‘Relief’), aiming to provide general guidance on the Relief available under the Corporate Tax Law (‘CT Law’). The objective of the “Qualifying Group Relief” provisions is to facilitate the transfer of capital assets or liabilities between two Taxable Persons within a Qualifying Group, ensuring no gain or loss for CT purposes (transfer is considered at book value). 

The key highlights of the Guide are outlined below:

Assets and liabilities eligible for Qualifying Group (QG) Relief 

  • QG Relief is applicable on transfers such as sale, exchange, relinquishment, sale, and lease back, etc. 
  • QG Relief applies only to the transfer of assets or liabilities held on capital account and recorded on the balance sheet of the Transferor.  
  • The transfer of assets or liabilities which are not held on capital account (for example, inventory transferred as part of regular Business operations) is not within the scope of QG Relief and hence, cannot benefit from the no gain or loss tax treatment. 
  • A transfer of assets or liabilities which are not recognised in the Financial Statements of the Transferor (for example, a self-generated intellectual property, such as goodwill, brand or customer lists) would not fall within the scope of QG Relief. 
  • Where assets or liabilities are transferred to a Taxable Person as a result of liquidation, dissolution or merger, QG Relief shall not apply.

Consideration for transfer under QG Relief –

  • QG Relief does not require any consideration to be paid. Where it is paid, it does not need to be in a specific form. Further, the consideration can be in cash or in kind. 
  • Where the Transferee pays consideration in kind in the form of another asset or liability held on capital account, this constitutes an exchange transaction. An exchange of assets or liabilities between two members of the same QG shall be treated as two separate transfers for the purposes of QG Relief. 

Conditions to be a member of a QG 

1. Transferor and Transferee are Juridical Persons such as such as private or public joint stock companies or limited liability companies and incorporated partnerships.

  • Natural persons or unincorporated partnerships which do not have separate distinct legal personality do not qualify for the Relief.  
  • However, the Relief may be available to a juridical person who is a partner in an Unincorporated Partnership or to a juridical person who is held by an Unincorporated Partnership. 

2. Transferor and Transferee are Taxable Persons. 

  • Where the Transferor or Transferee is a Resident Person under the UAE CT Law, they can be a member of a QG. 
  • Non-Resident Person with a Permanent Establishment in the UAE can also be a member of a QG. 
  • Non-Resident Person with a Permanent Establishment in the UAE transfers assets or liabilities attributable to its Permanent Establishment to or from another Taxable Person within its Qualifying Group, this transfer could benefit from Qualifying Group Relief if the relevant conditions are met. This can also apply if assets or liabilities are transferred from one Permanent Establishment in the UAE to another Permanent Establishment in the UAE. 
  • Exceptions:  
  • QG Relief is not available for transfers between a Permanent Establishment in the UAE and its head office outside the UAE. 
  • Non-Resident Persons which derive UAE sourced income or have nexus in the UAE cannot be member of QG even though they are considered as Taxable Persons as per the CT Law.

3. Transferor or Transferee must hold at least 75% direct, indirect or common ownership interest in the other party, or a third person (not necessarily a taxable person) must hold at least 75% ownership interest in both Juridical Taxable Persons (“Ownership Test”).

  • For the purposes of QG Relief, a Taxable Person shall be treated as holding an ownership interest where the following two conditions are met: – 
    • the ownership interest is controlled by that Taxable Person under the Accounting Standards applied by the Taxable Person and  
    • that Taxable Person has the right to the economic benefits produced by the ownership interest under the Accounting Standards as applied by the Taxable Person. 
  • The direct and indirect ownership interests held by members of the same Tax Group shall be determined by aggregating the ownership interests of the Parent Company and each Subsidiary that is a member of the Tax Group. 

4. Neither the Transferor or Transferee is an exempt person or a Qualifying free zone person.

5. Transferor and Transferee have the same financial year end and must prepare financial statements based on same accounting standards.

  • A Taxable Person has an option to apply to the FTA to change the financial year to align the end date of its financial year with other members of the Qualifying Group subject to certain conditions. 
  • Even if all members of the Qualifying Group use the same Accounting Standards, each member may follow different accounting policies, if those policies are permitted under the relevant Accounting Standards.

Note: Where the Transferor and Transferee elect to apply the QG Relief, they must remain members of the same QG for a period of two years from the date of the transfer in order to avoid a clawback of QG relief. Thus, each of the above conditions must be met throughout the relevant two-year period.

Clawback of the QG Relief 

  • The QG Relief shall not apply if within two years from the date of transfer: – 
    • there is subsequent transfer of the asset or liability outside the QG. 
    • the transferor or the transferee cease to be member of the same QG. This includes scenarios such as ownership changes, cessation of Taxable Person status, becoming an Exempt Person or QFZP, or financial year does not align with other group members.

However, the claw back is not triggered if the subsequent transfer of the asset or liability is within the Qualifying Group or if the new Transferee joins the Qualifying Group before the transfer of the asset or liability. 

Consequences of election for QG Relief: – 

  • For Transferor: Transfers deemed to be done at net book value, Accordingly, at the level of the Transferor, there would be no taxable gain or loss on transfer of the asset or liability. 
  • For Transferee:–  
    • In cases other than realisation, the Transferee shall adjust its Taxable Income to exclude depreciation, amortisation or other change in the value of the transferred assets and liabilities to the extent that it relates to the gain or loss that arose to the Transferor and was not recognised for CT purposes as a result of the no gain or loss treatment being applied. 
    • In cases upon realization – the Transferee will need to include any amount that has not been recognised for CT purposes. 

Compliance requirements 

  • The no gain or loss treatment within the QG is only available if the Transferor makes an election to FTA which means the QG relief is not automatic. 
  • The election should be made in the Tax Return for the Tax Period in which the transfer takes place. 
  • Once an election is made by the Transferor, it is irrevocable in the hands of the Transferor and cannot be reversed without the FTA’s approval. 
  • Further, the election will apply not only to the specific transfer in respect of which it was made, but instead to all transfers of assets and liabilities held on capital account by the Transferor within a QG which take place in the Tax Period for which the election was made, as well as any transfers in subsequent Tax Periods. 
  • Both the Transferor and the Transferee are required to maintain a record of the agreement to transfer the asset or liability and evidence of the value. 

Other Key Takeaways: 

  • Resident Persons opting for Small Business Relief cannot claim the QG Relief. 
  • A Taxable Person that is a Free Zone Person but not a Qualifying Free Zone Person can be a member of a QG.  
  • QG Relief does not permit Tax Losses to be transferred to the Transferee. 
  • In case the conditions of QG are not met or the Transferor does not elect for the QG relief, the transfer will be taxable as per the normal provisions of the UAE CT Law. This implies that the transfer must adhere to arm length pricing as outlined in the Transfer Pricing Rules.  
  • Transfer pricing rules are not applicable if the transferor has made an election for QG Relief in respect of transferred assets or liabilities that are held on the capital account. 
Download Qualifying Group Relief Guide

How Can UAE’s General Anti-Abuse Rules Impact Your Business?

UAE's general anti abuse rules

Ayushi Agrawal

Home Author Archives: Ayushi Agrawal
UAE's general anti abuse rules

It is common for businesses to do such tax planning and design strategies to reach the optimum tax liability scenario. With the announcement of the implementation of Corporate Tax in UAE, businesses would have started evaluating their current profitability scenarios to get an idea of their estimated tax liabilities once their tax assessment is completed for their reporting years.

To ensure that tax planning does not become tax evasion, certain rules have been applied under the CT Law. These rules intend to prevent tax strategies and planning that are made with the intention of evading taxes or reducing tax liabilities. Let us see in detail what these rules are and how they are applicable under UAE Corporate Tax Law.

What are Anti-Abuse Rules in Taxation?

Let’s start with understanding the terminology.

In the context of ‘Taxation’, the word ‘Abuse’ means ‘Misuse of tax law’. The rules formulated to prevent the misuse of tax laws are called anti-abusive rules.

Anti-abusive rules (AAR) are common rules around countries worldwide to prevent taxpayers from creating loopholes or manipulating the system to minimize their tax burden.

These rules follow the principle of “substance over form,” meaning thereby that the tax authority looks beyond the legal structure of a transaction and focuses on its true purpose to identify the correctness of the taxable income presented by the taxable person in front of the tax authorities.

General Anti-Abuse Rules Provisions under CT LAW

These rules follow the principle of "substance over form," meaning thereby that the tax authority looks beyond the legal structure of a transaction and focuses on its true purpose to identify the correctness of the taxable income presented by the taxable person in front of the tax authorities.

General Anti-Abuse Rules (GAAR):

The CT Law introduced General Anti Avoidance Rules and mandated the principal purpose test for transactions, which states that any transaction should not be conducted with only tax advantage as a motive. If that is the case, those transactions could be adjusted or recharacterized by the tax authority.

Reference to Legal provisions

As per Article 50 of UAE Corporate Tax Law:

The provisions of the GAAR apply where it can be reasonably ascertained that:

  • Taxable person has undertaken any transactions or arrangements without any valid commercial rational or other non-fiscal reason which fails to reflect economic reality;

    This means that GAAR provisions do not apply to transactions or arrangements carried out with intentions of valid commercial or non-fiscal reasons that reflect economic reality. Here, while evaluating the transactions or arrangements or any part thereof, the intention of the taxable person behind undertaking such transactions shall be deeply examined.

  • The primary purpose of undertaking such transaction, arrangement, or any part thereof should be to obtain a corporate tax advantage that is not consistent with the intention or purpose of the CT Law.

    Here, Corporate tax advantage includes, but is not limited to, the following:

    • A refund or an increase in the refund of corporate tax or
    • An advancement of the corporate tax
    • Avoidance or reduction of tax payable or
    • Deferral of payment of corporate tax or

If the transaction or arrangement avoids an obligation to deduct corporate tax, it shall also be regarded as a corporate tax advantage arising from the transaction or arrangement.

Explanation

It is worth noting that these Rules are applicable even for the transition period from when the law was published until it became effective.

That means If any taxable person has tried to alter their transaction or business model during the transition period to obtain only tax benefits, the GAAR Provisions will apply to such transaction or Business Strategy.

As long as a valid commercial rationale behind any restructuring/changes to the business model can be justified, General Anti-Abuse Rules provisions shall not be invoked under CT law.

Accordingly, we must be careful of this aspect and maintain adequate documentation to justify the commercial rationale behind any restructuring or changes made to the business.

Company A has a total Income of AED 600,000. Its Corporate Tax Liability under CT Law will be as follows –

  • Total Taxable Income = AED 600,000
  • Corporate Tax rate = 9%
  • Total CT liability = Up to threshold of AED 375,000 – No Tax Liability
  •  On balance Taxable Income = (600,000 – 375,000) X 9% = AED 20,250

Tax planning by splitting business

Here, Company 1 splits into Company 1 and Company 2 - so that Corporate Tax Liability is computed separately and threshold limit is availed by both the companies as against in the initial case.

Before the Split, the liability of the company was AED 20,250.

However, after the split, both Company 1and Company 2 will be individually able to avail the threshold limit for corporate tax computation. As both the company’s taxable income is within the threshold limit. Corporate Tax liability is zero

Analysis under UAE’s General Anti-Abuse Laws:

Commercial Rationale:

This transaction lacks a valid commercial reason. The Split of Company 1 into Company 1 and 2 is intended to avoid Tax payments by taking advantage of Threshold limit under Corporate Tax Law

Tax Advantage:

In the above example, both the basic conditions for invoking the General Anti-Abuse Rules are satisfied:

  • Transactions or arrangements should be entered without any valid commercial rationale and
  • The main purpose of undertaking such a transaction is to take advantage of corporate tax law.

Therefore, the Tax Authority may invoke the GAAR Provision for the above-mentioned transactions.

Want to know how UAE’s anti-abuse rules affect your business? Discover their impact and ensure your strategies are aligned.
Reach out now!

Cases where General Anti Abuse Rules Provisions Can Be Invoked by the Authority

Following are the cases/ situations where the FTA may invoke the provisions of GAAR:

Artificial Separation of Business:

Artificial separation refers to the practice of knowingly dividing a business into smaller entities to make it qualify for the tax benefits available as per the provisions of Article 21 related to Small Business Relief. (as explained in the above illustration)

Where the FTA establishes that one or more persons have artificially separated their business or business activity and the aggregate amount of revenue across the persons’ entire business or business activity exceeds the threshold of 3,000,000 AED in any tax period, and such one or more persons have elected to apply the small business relief, such artificial separation shall be regarded as tax abusive arrangement and attracts the provisions of General Anti-Abuse Rules under Article 50.

Specific Transaction or Arrangement:

The GAAR provisions can apply to any tax evasion transaction. Under GAAR provisions, the authorities get wide power and coverage to deny the undue tax advantage taken by the taxable person.

What Constitutes Corporate Tax Advantage?

As explained above, any transaction or arrangement that results in benefit in the form of, but not limited to, reduced tax liability or evading tax liability completely or results in Refund of Tax/increase in refund of corporate tax or deferment of payment of Corporate Tax.

Things that Authority Must Consider For the Purpose of Determining GAAR Provisions:

The tax authorities will have to consider multiple factors to determine the economic reality and applicability of GAAR to transactions and arrangements. UAE law provides an illustrative list of the following factors that should be considered:

Manner of transaction:

How the agreement or transaction was made, signed, and carried out.

Nature of the transaction:

The form, substance, and other relevant details of the arrangement or transaction.

Timing of the transaction:

When the transaction or arrangement was entered into or carried out.

Result of the transaction:

The outcome of the transaction or arrangement in terms of how the UAE Corporate Tax Law is applied.

Change in Financial Position of Taxable Person:

Any modification to the taxable person’s financial situation that has been, will be, or may reasonably be anticipated to be caused by the transaction or arrangement.

Change in Financial Position of another Taxable Person:

Any modification to another Person’s financial situation that has been, will be, or may reasonably be anticipated to be caused by the transaction or arrangement.

Creation of rights or obligations of transacting parties:

Whether the transaction or arrangement has created rights/obligations which would not normally be created between independent, unrelated parties.

Any other mitigating facts or circumstances.

Keep your business compliant with UAE’s anti-abuse rules, Get access to expert consultation with FAME.
Contact us now!

Impacts of Invoking GAAR Provision by the Authority

Under UAE CT Law, the tax authority could counteract or adjust CT advantages obtained in the following ways:

Determination by the FTA:

The tax authority (FTA) can use GAAR to identify and adjust unintended corporate tax benefits gained through tax avoidance. They have broad power to issue an assessment allowing or denying exemptions, deductions, or reliefs claimed by a person for doing tax avoidance transactions or arrangements.

The invocation of the GAAR of one taxable person can also impact the income calculation of another person. The FTA can essentially shift the denied benefits to another taxpayer to reduce the person’s tax liability.

Characterization of Payments:

GAAR provisions give wide powers to the tax authorities to re-characterise the payment or any part thereof, disregarding the effect of other CT provisions.

Example:

The company holding properties and earning rental income transfers the property in the name of the Individual to shift the business income to a personal income. Here, the Intention is to avoid tax liability, as rental income from property earned by individuals is not subject to corporate tax. Tax authorities may invoke GAAR provisions to examine the transactions and may consider the rental income as income of the business and hence make it taxable.

Corresponding Compensating Adjustment

While applying GAAR provisions, if FTA has made any adjustment according to the rules, then CT Law specifically provides for a corresponding compensating adjustment to the corporate tax liability of any other person affected by the determination made by the tax authorities.

To avoid General Anti Abuse Rules Risk, the Taxable Person must consider the following:

1. Demonstrate that transactions have genuine commercial and economic substance

Taxpayers must demonstrate that transactions have genuine commercial and economic substance and are not solely undertaken for tax avoidance purposes.

2. Comprehensive documentation explaining the commercial rationale

Detailed defence documentation explaining the commercial rationale behind transactions is essential.

3. Explain the reasons behind actions

The "Look at" approach is no longer valid but focuses on explaining the reasons behind actions.

4. Assess commercial objectives through alternative scenarios

A taxable person must assess the commercial objectives of truncations or arrangements through all the alternative scenarios.

5. Validate the intention behind the transactions/arrangements

A taxable person should validate the transactions or arrangements before entering the same so that it should not invoke the general anti-abuse rules provisions.

Conclusion

Implementing General Anti-Abuse Rules (GAAR) under Article 50 of the UAE Corporate Tax Law indicates a robust mechanism whose objective is to curb tax avoidance practices and ensure correctness and fairness in the tax system. These rules serve as a deterrent against the misuse of tax laws by individuals or entities seeking to gain undue corporate tax advantages through artificial transactions or arrangements which lack genuine commercial rationale.

Through GAAR provisions, the tax authority possesses broad powers to scrutinize transactions, assess their true economic substance, and counteract any unintended tax advantages obtained through tax avoidance. This includes recharacterizing transactions, disallowing deductions and imposing penalties to mitigate future non-compliance.

Also, the incorporation of Specific Anti-Abuse Rules (SAAR) along with the GAAR provides a comprehensive framework to deal with specific tax evasion practices and ensure transparency and compliance within the tax regulations.

To reduce the risk of GAAR invocation, taxpayers must ensure that their transactions have genuine commercial and economic reality and are supported by comprehensive documentation which explains the commercial rationale behind entering such arrangements or transactions. Moreover, validating the transactions before implementation and assessing their commercial objectives through alternative scenarios are crucial steps in avoiding potential GAAR implications from tax authorities.

Ultimately, the invocation of GAAR provisions helps tax authorities to make sure that every taxable person pays their fair share of taxes which keeps the tax system fair, and it also encourages people to follow the rules. This also ensures that there’s enough money for important aspects like supporting the country’s growth and development in the long run for sustainable economic growth and development.

Explore how UAE’s General Anti-Abuse Rules Impact Your Business Partner with us to navigate your compliance needs.
Contact us now

FAQ?

A. Article 50 provides two conditions to apply the GAAR provisions (Valid commercial transaction that reflects economic reality and purpose should be to obtain CT advantage), and both conditions are cumulative and should apply to invoke GAAR. There should be a reasonable conclusion about the satisfaction of both conditions. So, mere suspicion about the satisfaction of conditions cannot trigger GAAR provisions.

Search

Recent Insights

Corporate Tax Registration on EmaraTax: The Complete Guide

corporate tax registration on emaratax

Ayushi Agrawal

Home Author Archives: Ayushi Agrawal
corporate tax registration on emaratax

Understanding the Basics of Corporate Tax in UAE

Corporate Tax Registration on EmaraTax: The Complete Guide is a comprehensive look at the legal requirements related to corporate tax registration, documents required, procedures to follow, and mistakes to avoid. Read the article for a step-by-step guide for Corporate Tax Registration on the EmaraTax portal.

  • Corporate Tax (CT) is a direct tax levied on the net income or profit of corporations and other businesses. CT is also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.
  • A competitive CT regime based on international best practices is expected to 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. The introduction of a CT regime also reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices.
  • The UAE CT regime has become effective for financial years starting on or after 1 June 2023.

Examples:

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

Who should register for Corporate Tax?

Every taxable person, including Free Zone Persons, must register with the Federal Tax Authority (FTA) under the CT Law regime. Every person carrying out business or business activities in the UAE under the license must obtain a tax registration number.

Timeline for Corporate Tax Registration

All the Taxable persons must register under the Corporate Tax regime as per the timeline prescribed by FTA via decision no.3 of 2024.

Corporate Tax Registration Timeline for Taxable Persons: FTA Decision No-3 of 2024

On 28 February 2024, Federal Tax Authority (FTA) has released decision no.3 of 2024 stating the Timeline for Registration of Taxable Persons for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses and its amendments. The key highlights of the decisions are outlined below:

CT Registration Timeline: Key points to be taken into consideration

  • Effective date of this Decision is March 1, 2024.
  • In our view, first issue month (Original Issuance date mentioned in the Trade License) is to be considered for determining the deadline for CT registration. 
  • The earliest Deadline for submission is 31 May 2024 for the companies that have January or February as the license issue month.
  • Penalty of AED 10,000 will be imposed on non-submission of Corporate Tax Registration application rather than on obtaining Corporate Tax
Looking for a step-by-step guide for corporate tax registration on EmaraTax? Stay informed and navigate EmaraTax with us.
Contact us now

Timeline for Corporate Tax Registration on EmaraTax portal

  1. Timeline for Tax Registration of Resident Juridical Persons that are incorporated or established or recognised before March 1, 2024 are:
For resident Juridical person that have more than one license, in such case the license that was issued earliest shall be considered.

Month of Issue of License irrespective of year of issuance of licenseDeadline for Submitting a Tax Registration application  
1 January - 31 January31 May 2024
1 February - 28/29 February31 May 2024
1 March - 31 March30 June 2024
1 April - 30 April30 June 2024
1 May – 31 May31 July 2024
1 June - 30 June31 August 2024
1 July – 31 July30 September 2024
1 August – 31 August31 October 2024
1 September – 30 September31 October 2024
1 October – 31 October30 November 2024
1 November – 30 November30 November 2024
1 December – 31 December31 December 2024
If a person does not have a license on March 1, 20243 Months from 1 March 2024 (i.e., before the end of May 2024)

2.Timeline for Tax Registration of Resident Juridical Persons that are incorporated or established or recognised on or after March 1, 2024:

Category of juridical personsDeadline for Submitting a Tax Registration application 
A person that is incorporated or established or recognised under the applicable legislation in the State, including a Free Zone Person.3 months from the date of incorporation, establishment or recognition.
A person that is incorporated or established or recognised under the applicable legislation of a foreign jurisdiction that is effectively managed and controlled in the UAE.3 months from the end of the Financial Year of the person.

3. Timeline for Tax Registration of Non-Resident Juridical Persons:

    • Became non-resident taxpayer before 1 March 2024:
      • A person that has a Permanent establishment in UAE: must register within 9 months from the date the permanent establishment came into existence.
      • A person that has Nexus in the UAE: must register within 3 months from 1 March 2024 (i.e. before the end of May 2024).
    • Became non-resident taxpayer on or after 1 March 2024:
      • A person that has a Permanent establishment in UAE: must register within 6 months from the date the permanent establishment comes into existence.
      • A person that has Nexus in the UAE: must register within 3 months from the date the nexus was established.

4. Timeline for Tax Registration of Natural Persons:

    • Resident Natural Persons whose total turnover exceeds AED 1 Mn in a Gregorian calendar year (January-December): before31 March of the subsequent Gregorian year
    • Non-residents Natural Person conducting a Business or Business Activity during the 2024 Gregorian calendar year or subsequent years whose total Turnover derived in a Gregorian calendar year exceeds AED 1 Mn: within 3 months from the date the individual became a UAE taxpayer.

5. An administrative penalty of Dh10,000 will be imposed for late registration of UAE Corporate Tax. This penalty is applicable to businesses that fail to submit their Corporate Tax registration applications within the aforementioned timelines set by the FTA.

What is the EmaraTax Platform?

EmaraTax Platform is the Official website managed by the FTA (Federal Tax Authority of the UAE) that offers various digital services to UAE Businesses. The services include handling Tax Registration, Filing of Returns, Payment of Taxes and Applying for tax refunds under the UAE CT Law regime. Read further to know how to register for corporate tax in UAE.

What are the Documents Required for Corporate Tax Registration on EmaraTax?

Documents required for CT Registration on EmaraTax Portal:

  • Certificate of Incorporation and Copy of all the latest Trade licenses.
  • Copy of Memorandum of Association & Articles of Association / Partnership Agreement or any other document showing ownership information about the business.
  • Registered office address.
  • Financial Year adopted by a Taxable person to prepare financial statements.
  • Copy of the latest Emirates ID and Passport of the Owners/shareholders, along with details of their shareholding in the business.

What are the Steps for Corporate Tax Registration on EmaraTax?

Steps to apply for CT Registration on the EmaraTax Portal:

Step 1 : Create an account / EMARA Tax Login

  1. Create an account on the EmaraTax portal by registering with your email ID and Phone number or logging in using your existing ID and password.

Step 2 : Entity Details Section

  1.  Select the appropriate option for Entity Type and Entity Sub Type.

Step 3 : Identification Details

  1. Depending on the ‘Entity Type’ selected, you must provide the main trade license details in the identification details section.
  2. Click ‘Add Business Activities’ to enter all the business activity information associated with the trade license.
  3. Enter the mandatory business activity information and click on Add.
  4. Click on ‘Add Owners’ to enter all the owners that have 25% or more ownership in the entity being registered.
  5. Select ‘Yes’ if you have one or more branches, and add the local branch details.

Step 4 : Contact Details

  1. Enter the registered address details of the business.
  2. Do not use another company’s address (for example, your accountant). If you have multiple addresses, provide details of the place where most of the day-to-day activities of the business are carried out.
  3. If you are a foreign business applying to register for UAE CT, you may choose to appoint a tax agent in the UAE. In such cases, provide the necessary details.

Step 5 : Authorized Signatory

Step 6 : Review & Declaration

  1. This section highlights all the details you entered across the application. You are requested to review and submit the application formally.
  2. After submitting your application successfully, a Reference Number is generated for your submitted application. Note this reference number for future communication with FTA.

Other Important Aspects:

Registration of Entity with foreign Corporate Shareholder under UAE CT Law Regime:

In CT application, under owner details tab, while mentioning details for corporate shareholders which is a foreign entity, the drop down does not contain any option for foreign trade license issuing authority. As a result, being a mandatory field, UAE trade licensing authority of registrant entity has to be selected in order to proceed to the next step of CT application

Want to be prepared for EmaraTax requirements? Get tailored support and stay ahead by partnering with FAME.
Reach us now!

What are the Mistakes to Avoid During UAE Corporate Tax Registration on EmaraTax?

Incomplete Documentation:

It is to be ensured that the documents submitted support the information you entered in the application. This would help to avoid any rejection or resubmission of the application later.

Expired Documents:

Please ensure all legal documents, such as the trade license, are current and not expired when submitting your application. Expired documents will delay processing, and FTA may raise queries accordingly.

Inappropriate Information:

The applicants are supposed to provide a ‘Date of Incorporation’ while applying for CT registration. Applicants commonly make a mistake to provide a Trade License Renewal date. However, here, it is expected to provide the Date of Incorporation of the entity. Such mistakes may lead to the rejection of the CT registration application by the FTA, UAE.

Selection of Options while applying for CT Registration with the FTA:

If the entity has selected entity Type as ‘Legal persons – Other’ in VAT Registration, then at the time applying for CT Registration Application, Applicant cannot edit the Type of Entity and it will be auto populated as ‘Legal Persons-other’. And eventually such application are accepted by the FTA

Post-Registration Responsibilities and Compliance

Regular Tax Return Filing:

Article 53 ‘Tax Returns’ provides that every taxable person is liable to file a return of income online within 9 months from the end of the tax period or by any other such date as directed by the FTA. Information to be disclosed in the tax return:

It is mandatory for the taxable person to disclose the following information in the tax return:

  • The tax period to which such tax return relates;
  • The name, address, and tax registration number of the taxable person;
  • Date of submission of the tax return;
  • The accounting basis used in the financial statements;
  • Taxable income for the tax period;
  • Particulars of the brought forward loss;
  • Particulars of the tax loss transferred and set off against the income of another taxable person;
  • Particulars of withholding tax credit and foreign tax credit;
  • Corporate tax payable for the tax period.

Exempt categories of persons are also needed to register under UAE CT Law and need to file a declaration with FTA for the same.

  • The parent shall file the tax return for the ‘Tax Group.’
  • The FTA may decide on the different forms and particulars to be submitted by different categories of the taxable person.

Due date to submit the tax return:

Return is to be filed within 9 months from the end of the relevant tax period or by such other date as may be decided by the FTA.

Audits and Assessments:

Audit & Accounts:

A taxable person with revenue exceeding AED 50,000,000 (fifty million dirhams) during the relevant tax period and a Qualifying Free Zone Person will be required to prepare and maintain Audited Financial Statements.

Taxable and exempt persons shall maintain all records and documents for a period of (7) seven years.

Assessments:

Once the taxpayer files the return of income, the next step is processing the return of income by the FTA. The FTA examines the return of income for its correctness, commonly referred to as ‘Assessment.

The FTA shall issue a tax assessment to determine the corporate tax payable, corporate tax refundable or any other matters as prescribed by the CT law and notify the taxable person within 10 business days of its issuance in any of the following cases:

  1. The taxable person fails to apply for registration within the prescribed time frame;
  2. The registrant fails to submit a tax return within the prescribed timeframe;
  3. The taxable person fails to pay the payable tax as per the tax return submitted within 9 months from the end of the tax period;
  4. The taxable person submits an incorrect tax return;
  5. The registrant fails to calculate tax on behalf of another person when he is obligated to do so under the tax law;
  6. There is a shortfall in the payment of tax as a result of a person evading tax or as a result of a tax evasion in which such person was involved;
  7. Any other cases in accordance with the CT Law.

Audits and Assessments: Penalties for Non-Compliance

Administrative Penalties:

If the taxable person fails to submit a tax registration application within the prescribed time limit, then the administrative penalty would be as follows:

Description of Violation
Administrative Penalty Amount in AED
Failure of the Person Conducting a Business or Business Activity to keep required records and information as per the provisions of UAE Corporate Tax Law.
One of the following penalties shall apply:
1. 10,000 for each violation OR 2. 20,000 for each repeated violation within 24 months from the date of the last violation.
Failure of the Person Conducting a Business or Business Activity to submit the data, records and documents related to Tax in Arabic to the Authority when requested.
AED 5,000
Failure of the Taxable Person to submit a Tax Registration application within the timeframe specified by the authority in accordance with the Corporate Tax Law
AED 10,000

Seeking Professional Help for Tax Registration on Emara Tax

Hiring a tax consultant in the United Arab Emirates (UAE) to comply with the country’s Corporate Tax (CT) laws can offer multiple benefits. The following are a few advantages:

Smart Advice:

They know UAE tax rules inside out and talk to you like a friend, not a tax robot.

Custom Plans:

They make tax plans that fit your business like a glove—no generic stuff.

Time Saver:

They handle the tax fuss, giving you more time for your job.

No Fines, No Stress:

Keep up with deadlines, avoid fines, and wave goodbye to tax stress.

Audit Buddy:

If a tax audit happens, they’ve got your back. Less stress, more support.

Save Money, Not Spend:

Yeah, you pay them, but it’s an investment. Saves more than it costs.

Money Talk, Plain and Simple:

They explain how tax moves affect your money. No fancy talk, just straightforward advice.

Connections Beyond Tax:

Need more than tax help? They’ve got a network for legal and money matters.

So, a corporate tax consultant isn’t just an expense. It’s a wise move. They bring smarts, keep you in the tax game, and set you up for business success.

Conclusion

The UAE government has introduced the Corporate Tax (CT) and positioned the country as a business and investment hub. It demonstrates the UAE authorities’ commitment to bringing transparency into business dealings. The introduction of corporate tax in the UAE will boost the economy and attract foreign direct investment.

Businesses in the UAE need to assess the applicability of the corporate tax law for their entities and establish sound record-keeping and compliance practices to comply with the legal requirements. The businesses need to train their staff and follow the updates and ministerial decisions issued by the UAE Federal Tax Authority. Make use of our corporate tax registration guide, be ready with documents required for corporate tax registration in UAE and comply with the CT registration requirements.

The Federal Tax Authority maintains the EmaraTax Portal, which streamlines Corporate Tax Registration in the UAE. In addition to Corporate Tax Registration, we offer Tax Representation and Litigation Support services, helping businesses ensure compliance and resolve any tax-related disputes efficiently.

Simplify your corporate tax registration on EmaraTax! Discover how FAME Advisory can help you with EmaraTax Platform.
Reach out now!

Search

Recent Insights

Webinar on Corporate Tax (CT) Registration

Webinar on Corporate Tax (CT) Registration

Webinar on Corporate Tax (CT) Registration

FAME Advisory has come up with an exclusive webinar on Navigating Through Corporate Tax (CT) Registration. The aim of conducting the webinar is to keep everyone updated on the latest rules and guidelines concerning Corporate Tax Registration.

FAME Advisory’s tax veteran, Karishma Bhuwalka, is going to take you through a journey that starts with the basics and goes to the complex aspects. The highlight of the webinar is the easy-to-understand content, dedicatedly created to impact simplified learning to the attendees.

Download Corporate Tax Registration Webinar Presentation!

What does our Corporate Tax (CT) Registration Webinar Cover?

The FAME Advisory’s webinar on corporate tax (CT) registration covers all the essential aspects of corporate tax registration:

  1. Type of persons covered: Here, the speaker will explain to whom the corporate tax registration is applicable and under what conditions.
  2. Timeline prescribed for Corporate registration: Explanation of the prescribed timeline; it contains information about Fiscal year-end, the First reporting period, and the due dates for filing the first CT return and payment.
  3. How to register for Corporate Tax: In this section, our taxpert will explain the complete corporate tax process with step-by-step instructions.
  4. Practical challenges involved: Theoretical knowledge isn’t enough and therefore, we have come up with the webinar containing practical challenges that users face during corporate tax registration and how you can overcome them.

Who should Join Our Corporate Tax (CT) Registration Webinar?

The webinar will be useful for:

  • Business owners, managers, and compliance officers who handle corporate tax activities and compliance for an organization.
  • Tax enthusiasts and upcoming consultants who wish to advise people on UAE corporate tax matters.
  • Finance professionals who are involved in tax planning and reporting matters.
  • Legal professionals who deal with corporate tax matters.
  • Individuals and students who wish to learn about corporate tax laws and regulations for their professional or academic growth.

Benefits of Joining Our Corporate Tax (CT) Registration Webinar

  • Expert guidance on CT registration matters
  • Keep yourself updated with the latest corporate tax registration guidelines
  • Practical tips to ensure that CT registration stays smooth
  • Enhanced compliance by detecting gaps in your CT registration
  • Improving CT tax management skills and knowledge

Don’t miss out on the opportunity to gain important CT registration insights.

About Speaker

Karishma Bhuwalka is an experienced chartered accountant who has been working in the field of direct & international taxation for more than a decade. Karishma strives to provide solution-oriented advisory for clients & ensure tax compliance. Over the course of her professional journey, she has helped several firms solve complex group structure and transfer pricing issues. Moreover, she ensured compliance for clients at an affordable cost without compromising quality.

IBPC Event: Nirav Shah’s Latest Publication Unveiled

In the event organized by the Indian Business and Professional Council, Dubai (IBPC, Dubai), CA Nirav Shah proudly showcased his latest publication, “Taxmann’s Law and Practice Relating to UAE Corporate Tax.”

The corporate tax guide focuses on bringing all the UAE corporate tax information in one book, serving as the go-to reference in the field.

During the event, Mr. Shah spoke about the significant changes in the UAE business environment over the past year, notably the introduction of corporate tax. The publication contains comprehensive insights supported by detailed examples, infographics, article-wise commentary, FAQs, and more.  

Presenting Corporate Tax Guide at the IBPC Event

Corporate Tax Guide at the IBPC Event

CA Nirav Shah exhibited his latest publication, Taxmann’s Law and Practice Relating to UAE Corporate Tax, at the IBPC Dubai (Indian Business and Professional Council, Dubai) event. The book is one of its kind on UAE corporate tax and acts as a companion in the journey of understanding corporate tax.

During the event, Nirav Shah also addressed what has changed in the last year regarding doing business in the UAE is, specifically the introduction of corporate tax.  

Mr Nirav shah explained that he aims to bring everything together with the help of the reference guide. It also contains detailed examples, infographics, case studies, and more.