UAE to introduce 9% corporate tax on business profits from June 1, 2023 (FZCO REMAINS 0%)

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uplana

Corporate Services
Mentor Group Gold
we need to write enough letters and words to post something, hence me blablablbalbala characters to make up my post.....(didnt mean blablablabla to you)
5 words is that too much? You must have a very sparse vocabulary!

Back to topic 9% corporate tax may not be something bad, now they just need to implement double tax treaties and people will be happy again.
 

lacomaco

Mentor Group Gold
5 words is that too much? You must have a very sparse vocabulary!

Back to topic 9% corporate tax may not be something bad, now they just need to implement double tax treaties and people will be happy again.
You would be surprised how many treaties the UAE has (nearly 100)
 

OffMyBack

Mentor Group Gold
there are no details for this. they should be published in due course. Indeed devil is in the details.......
 

Fred

Dubai Expat
Mentor Group Gold
Elite Member
Commercial Service
Entrepreneur
Valid only for UAE citizens?
Depends on the Country - while Germany has no longer a Double Tax Treaty with the UAE they had previously only a "one-way" treaty for UAE citizens.

Austria and Switzerland have a fully functional Double Tax Treaty for both UAE and there own Citizens - that's the reason why we have a lot of Swiss and Austrian Clients with a Dubai Company and just a local Director in Dubai - works without any issues.

@Fred You are the expert when it comes to UAE. So I have to ask you this. When UAE implements this, what would the Source Income rules be like? Any Idea? And how about Foreign Dividends or profits? Any CFC rules?

I tend not to pay attention to the advertised tax rate, the devil is always in the details.
It's plane PR and considering my conversation with several CEO's and Chairmans of Business Authorities it literally smells like a deal with the FATF to not getting grey listed. Everyone of this high position leaders wasn't aware of this announcement - it was discussed and expected already during last year it was clear however the date of announcement surprised everyone - but of course makes sense to avoid FATF grey listing.

Nobody knows yet about the written law but everything remains the same the next 18 months and even then we will see some kind of "soft" launch for many years - considering the VAT implemented in 2018 is still till today in some kind of soft launch and not really enforced.

Considering everything we see all togehter daily in practice - we are far far away from bureaucracy stuff like CFC rules anytime soon.

Personally I would now of course avoid everything in the mainland if I don't intend to run a Supermarket or Restaurant in Dubai.

I'm glad we did avoid the Mainland as much as possible and for none of our existing or new clients does change anything.

A big question tag will be the UAE Banking - I can imagine the missing Residence Visa for RAK ICC's can be then the missing Tax for Freezone Companies and the bank account opening will continue to be more lengthy.

Long story short - get your setup done within the next 18 months as we as a honest service provider need to see then if we can hold the line in terms of getting everyone business banking done.

I think on the personal level nothing will change in terms of tax and regulation otherwise expat after expat would leave.

As for now this all seems to me much more being PR to avoid FATF Grey Listing then everything else and it shows the UAE want to become more then just another Cayman Islands.
 

NamR

New member

Free zones​


Below FAQs are from this link under freezone section https://www.mof.gov.ae/en/resourcesAndBudget/Pages/faq.aspx

01
Will a free zone business be subject to UAE CT?

Free zone businesses will be subject to UAE CT, 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

02
Will a free zone business be required to register and file a CT return?

A business established in a free zone will be required to register and file a CT return

Further details on the compliance obligations of free zone businesses will be provided in due course

03
Will the UAE CT treatment be different for a free zone business established in a financial free zone?

The UAE CT treatment that will apply to businesses in free zones will be the same across all free zones

Does this mean Freezones need to file and claim returns?
 

Fred

Dubai Expat
Mentor Group Gold
Elite Member
Commercial Service
Entrepreneur

Free zones​


Below FAQs are from this link under freezone section https://www.mof.gov.ae/en/resourcesAndBudget/Pages/faq.aspx

01
Will a free zone business be subject to UAE CT?

Free zone businesses will be subject to UAE CT, 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

02
Will a free zone business be required to register and file a CT return?

A business established in a free zone will be required to register and file a CT return

Further details on the compliance obligations of free zone businesses will be provided in due course

03
Will the UAE CT treatment be different for a free zone business established in a financial free zone?

The UAE CT treatment that will apply to businesses in free zones will be the same across all free zones

Does this mean Freezones need to file and claim returns?
In theory yes - however it's the same with the VAT already.

Nobody enforces anything - the VAT is in a soft launch since the very beginning.

I would say 10% file a VAT return as 0 and the other 90% don't do anything - this are at least the numbers I can see.

This plane dumb theory is very hardly working here in the UAE - because no one bothers with enforcing to file a anyway 0 everywhere return.

FZCO remains 0% tax and if we are forced to file once a year a 0 across all fields - so let it be.

It's the same with a UK LLP, US LLC etc. - that's the whole point of this announcement - going into a Western direction and handling things smart.

I can make here only a transfer from the existing VAT and how things are enforced - next 18 months remain the same anyway - it does not really make sense to announce this CT and having not even a legal framework for - so like the guys before me said - it's PR - we guess PR for the FATF.
 

Martin Everson

Offshore Retiree
Staff member
Mentor Group Gold
Elite Member

Free zones​


Below FAQs are from this link under freezone section https://www.mof.gov.ae/en/resourcesAndBudget/Pages/faq.aspx

01
Will a free zone business be subject to UAE CT?

Free zone businesses will be subject to UAE CT, 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

02
Will a free zone business be required to register and file a CT return?

A business established in a free zone will be required to register and file a CT return

Further details on the compliance obligations of free zone businesses will be provided in due course

03
Will the UAE CT treatment be different for a free zone business established in a financial free zone?

The UAE CT treatment that will apply to businesses in free zones will be the same across all free zones

Does this mean Freezones need to file and claim returns?

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05
Are there any consequences for non-compliance under the CT regime?


Similar to other taxes in the UAE (e.g. VAT), businesses will be subject to penalties for non-compliance with the CT regime. Further information on the UAE CT compliance obligations and applicable penalties will be released in due course.
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Humm I wonder ns2.
 

Fred

Dubai Expat
Mentor Group Gold
Elite Member
Commercial Service
Entrepreneur
------

05
Are there any consequences for non-compliance under the CT regime?


Similar to other taxes in the UAE (e.g. VAT), businesses will be subject to penalties for non-compliance with the CT regime. Further information on the UAE CT compliance obligations and applicable penalties will be released in due course.
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Humm I wonder ns2.
Me either - never seen in practice.
 

Bill D

Silver Member
In case you are resident in UAE, and actively managing your investments (online from UAE thus) , or even trading/day trading, could it requalify you as a professional commercial activity (above a certain number of yearly transactions) and thus put you under the scope of this new taxation ?
 

lacomaco

Mentor Group Gold
Me either - never seen in practice.
The FAQ says:
Will a free zone business be subject to UAE CT?
Free zone businesses will be subject to UAE CT, 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

DMCC requires the renewal of the licence every year. According to this, DMCC will be taxable next year? I tried to search the website for infomabout the length ofmthe tax-free status but found nothing…

But probably many clients are asking this question, so answers will be forthcoming soon
 

Walter Rowe

New member
Am i missing something here? But notwithstanding the potential 9% CT , personal tax remains at 0%
Therefore there is still the option of paying yourself 100% of the profits and no tax paid?
 

ElBotellon

New member
The FAQ says:
Will a free zone business be subject to UAE CT?
Free zone businesses will be subject to UAE CT, 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

DMCC requires the renewal of the licence every year. According to this, DMCC will be taxable next year? I tried to search the website for infomabout the length ofmthe tax-free status but found nothing…

But probably many clients are asking this question, so answers will be forthcoming soon

if the salary for managers will still be deductible in the fiscal P&L of the entity and the individual tax will be 0% then theoretically one could pay a big salary basically reducing the CIT. Pls correct me if i am wrong.

from the faq "
Will an individual’s salary income be subject to UAE CT?

UAE CT will not apply on an individual’s salary and other employment income (whether received from the public or private sector)".


last but not least, what does this mean?


"Will intra-group transactions be exempt from UAE CT?

Qualifying intra-group transactions and reorganizations will not be subject to UAE CT provided the necessary conditions are met"

it suggests the presence of space for profit shifting unless transfer pricing controls are in place.
 

Fred

Dubai Expat
Mentor Group Gold
Elite Member
Commercial Service
Entrepreneur
In case you are resident in UAE, and actively managing your investments (online from UAE thus) , or even trading/day trading, could it requalify you as a professional commercial activity (above a certain number of yearly transactions) and thus put you under the scope of this new taxation ?
No - you as an individual remain tax free for sure - same with investments, dividends and foreign income. Even when you perform it under the FZCO - CT rules will either apply but they are 0 (nobody knows) or it remains the same like actually and you don't have to do anything similar like with VAT (nobody knows)

The fact is that 90% of the Dubai Companies are FZCO's - it's a core business and everyone I talked to so far can hardly imagine the UAE destroys one of there core business.

The FAQ says:
Will a free zone business be subject to UAE CT?
Free zone businesses will be subject to UAE CT, 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

DMCC requires the renewal of the licence every year. According to this, DMCC will be taxable next year? I tried to search the website for infomabout the length ofmthe tax-free status but found nothing…

But probably many clients are asking this question, so answers will be forthcoming soon
Nobody knows and we can only interpret the wording because there is no written rule.

However when you call or email any Freezone they will either don't respond at all or tell you that everything remains 0 - which makes sense - the CT incentives will be honoured -CT across all Freezones is 0.

Am i missing something here? But notwithstanding the potential 9% CT , personal tax remains at 0%
Therefore there is still the option of paying yourself 100% of the profits and no tax paid?
Thats it.

And this is only one of many loopholes - I mean guys come on - imagine the 3000 AED salary Taxi Driver needs to pay 9% tax.

You can lower the company profits left and right - I'm sure at the end of the day even mainland companies will figure ways out to remain either completely tax free or close to.

Imagine in practice every UAE company files a tax return end of 2023 - files a tax return to an department that exists a few months - happy birthday.
We have actually since August last year a backlog due to a new issued Emirates ID version and this is only a change in production - now imagine the backlog when humans have to cross check your CT filing with your paperwork.

if the salary for managers will still be deductible in the fiscal P&L of the entity and the individual tax will be 0% then theoretically one could pay a big salary basically reducing the CIT. Pls correct me if i am wrong.

from the faq "
Will an individual’s salary income be subject to UAE CT?

UAE CT will not apply on an individual’s salary and other employment income (whether received from the public or private sector)".


last but not least, what does this mean?


"Will intra-group transactions be exempt from UAE CT?

Qualifying intra-group transactions and reorganizations will not be subject to UAE CT provided the necessary conditions are met"

it suggests the presence of space for profit shifting unless transfer pricing controls are in place.
Yes at least the salary part is correct - intra-group - nobody knows.


All in all it's a big announcement that has to fulfill a purpose otherwise it doesn't make sense to do such an announcement so early without having any written law so everyone is guessing the announcement was made so early to shield the FATF grey listing.


From what's available now - if you think a bit around the corner everything can remain the same - but per definition it's not tax free - makes sense to relief international pressure especially from the local banks.
 

Bill D

Silver Member
No - you as an individual remain tax free for sure - same with investments, dividends and foreign income. Even when you perform it under the FZCO - CT rules will either apply but they are 0 (nobody knows) or it remains the same like actually and you don't have to do anything similar like with VAT (nobody knows)

The fact is that 90% of the Dubai Companies are FZCO's - it's a core business and everyone I talked to so far can hardly imagine the UAE destroys one of there core business.
If you read well what you says is true only for "other income earned by individuals that does not arise from a business or other form of commercial activity licensed or otherwise permitted to be undertaken in the UAE.""

But if you are actively managing your investments from UAE online/trading as most people do and think they are safe by doing so, professional tools and a frequency above some yearly threshold, coudln't this in theory be seen as a professional commercial activity ?...
 

calnana

New member
If you read well what you says is true only for "other income earned by individuals that does not arise from a business or other form of commercial activity licensed or otherwise permitted to be undertaken in the UAE.""

But if you are actively managing your investments from UAE online/trading as most people do and think they are safe by doing so, professional tools and a frequency above some yearly threshold, coudln't this in theory be seen as a professional commercial activity ?...
That would indeed suck. Although it would be very surprising considering the very clear distinction between personal and business affairs in the UAE. We have to wait and see what the law actually says.
 

rowena

Entrepreneur
If you read well what you says is true only for "other income earned by individuals that does not arise from a business or other form of commercial activity licensed or otherwise permitted to be undertaken in the UAE.""

But if you are actively managing your investments from UAE online/trading as most people do and think they are safe by doing so, professional tools and a frequency above some yearly threshold, coudln't this in theory be seen as a professional commercial activity ?...
Trading or managing your investments under your name is not a commercial activity or business.
 

Martin Everson

Offshore Retiree
Staff member
Mentor Group Gold
Elite Member
if the salary for managers will still be deductible in the fiscal P&L of the entity and the individual tax will be 0% then theoretically one could pay a big salary basically reducing the CIT. Pls correct me if i am wrong.

Expect the UAE to enact tax anti avoidance legislation at some point maybe even adopt GAAR. This behaviour you describe will fall under GAAR as an abusive practice to reduce your tax base by using an excessive salary. I wouldn't do this in a place like UAE until they publish there CT compliance obligations and penalties.


Maybe the below is true but who knows. But knowing UAE you will have to wait and see if any FZ tax breaks given to investors are honored.


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Companies incorporated in UAE’s free zones or financial free zones will also be subject to the federal corporate tax. However, it appears that such companies will continue to enjoy applicable tax breaks and incentives in the manner and for the duration set out under the legal framework of the relevant free zone authority.

For instance, Dubai International Finance Centre (DIFC) law and the Abu Dhabi Global Market (ADGM) law provide that a DIFC- or ADGM-incorporated company is subject to a zero tax rate for a period of 50 years from the time the law in question enters into effect. Accordingly, DIFC- and ADGM-incorporated companies could expect to remain subject to zero tax rate until 2071 and 2063, respectively.


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