Small Business Compliance Checklist
Corporation Tax Bookkeeping
The new UAE Corporation Tax regime will require businesses to have comprehensive accounting and bookkeeping in place. Not doing so could lead to financial penalties (historically the FTA has been lenient with penalties, but naturally any and all penalties should be avoided as much as possible). Let’s take a look at the ways you can prepare your small business for the upcoming UAE Corporation Tax regime.
Corporation Tax Software
The UAE is new to Corporation Tax, as such, businesses will require the assistance of powerful software implementation, such as QuickBooks Accounting Software.
Corporation tax software can support with accurate calculation of corporation tax along with keeping an audit trails of the adjustments required as per law.
Using tax software which compliments your existing ERP system would be key. Having an API which connects to your system, pulls the data with one button and can calculation your tax due would save you time and money.
Accounting and Transactional Review
Businesses will need to stay on top of
- E-audits
- E-compliance
- E-assessments
- E-invoicing
This, along with the various other essentials for good bookkeeping for your small business, requires experience to implement correctly.
Businesses which are based in Freezones will need to ensure that they are able to take advantage of the tax free breaks from their freezone authorities. This would involve a transactional review along with a review of agreements.
There are likely to be transactions booked into the accounts which are allowable under IFRS and VAT but not allowed under corporation tax rules. A detailed review of these transactions along with disclosing them would be required.
Companies with related party transactions are likely require a transfer pricing document to be prepared and to be disclosed.
Having audited financial statements of your accounts would be ideal when calculating accurate tax returns. This means that your accounts have been reviewed by an independent third party and prepare as per IFRS.
With InfoTreeIT, you will have access to our team of experts. We know the new UAE Corporation Tax inside and out and can give the guidance your business needs to be financially in control.
Key Highlights on UAE Corporation Tax
- UAE Corporation tax rate one of the lowest within the GCC region and along major economies
- Tax applicable on profits above AED 375,000 and not below that
- Standard Corporate Tax Rate is 9%
- CT effective from 1 July 2023 from financial year 2023 ending on 30 June 2024
- The financial year for businesses starting 1 January 2023 and ending 31 December 2023 will become subject to the tax beginning from 1 January 2024
- Tax incentives offered to freezone businesses complying with all regulatory requirements will remain
- Capital gains and dividends received by the companies in UAE from their qualifying shareholdings are also exempt from paying CT.
Corporation Tax - FAQ
Corporate Tax (CT) is a 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. Most countries have a comprehensive CT regime, including most of the GCC Member States.
0% for taxable income up to AED 375,000
9% for taxable income above AED 375,000
There is also a different tax rate for large multinationals that meet specific criteria set with reference to ‘Pillar Two’ of the OECD’s (Organisation for Economic Cooperation and Development’s) Base Erosion and Profit Shifting project.
Corporation tax is effective from 1st of June 2023 and it is expected that filing and payment deadlines will be 9 months after the financial year end.
Companies operating in Free Zones will be subject to UAE Corporation Tax, but the UAE Corporation Tax regime will continue to apply incentives offered to free zone businesses (providing they comply with the regulatory requirements and do not conduct business with mainland UAE).
Entities operating in Free Zones will be subject to a 0% CT rate on their taxable income. If an entity located in a Free Zone derives non-passive income from mainland UAE all its income will be subject to the general CT regime.
Under the upcoming UAE Corporation Tax regime, foreign companies will be subject to the corporate tax rate of 9% on annual taxable income exceeding AED 375,000.
To qualify for the 9% annual tax rate a foreign company operating in UAE has
Their Permanent Establishment (PE); or
Their Place of Effective Management; or
Their source of income.
On the 1st of June 2023, the corporate tax rate will be 9% of the net profit made by businesses in the AUE. In order to support small businesses and start-ups, the corporate tax rate will be ‘0’ % if the net profit is up to 3,75,000 AED.
The best way to prepare for the new Corporation Tax is to have accounting software which covers all the necessary requirements. The best accounting software for businesses currently is QuickBooks Accounting software.
On the 1st of June 2023, the corporate tax rate will be 9% of the net profit made by businesses in the UAE. In order to support small businesses and start-ups, the corporate tax rate will be ‘0’ % if the net profit is up to AED 375,000.
