Overview of Tax Compliance Services in the UAE

The United Arab Emirates (UAE) is in the southeast of the Arabian Peninsula and is bordered by Oman to the east and Saudi Arabia to the south and west and Persian Gulf to the north. It is a constitutional federation of 7 Emirates: Abu Dhabi, Sharjah, Dubai, Ajman, Umm Al-Quwain, Ras Al-Khaimah, and Fujairah. This federation was officially established on 02.12 1971, and the capital is Abu Dhabi.  UAE's official language is Arabic, with English being spoken and used in business, and the official currency is the United Arab Emirates Dirham (AED).

The UAE  has a stable political system,well-established infrastructure,  and one of the most liberal trade regimes in the Gulf region. It is increasingly important, relevant, and attractive to businesses worldwide as a place for doing business and as a hub for the region and beyond.

This destination is also one of the best examples in the region of an economy which has successfully moved away from relying on the energy sector. A significant proportion of the GDP, ie gross domestic product, is derived from non-oil revenues.

Various Taxes in the UAE

The various taxes applicable in the UAE are discussed below –

Corporate Tax (UAE CT)

As per the Emirate-level tax decrees, income tax is payable in accordance with a progressive rate system, with rates up to 55%. However, in practice, these tax decrees haven’tbeen applicable. Instead, branches of foreign banks attract income tax at a flat rate of 20% as per separate Emirate-level bank decrees. Companies involved in UAE petrochemical,  oil and gas activities attract income tax at 55%+ rates as per their individual UAE concession agreements or fiscal letters.

The Federal UAE CT Law, which shall be effective from the financial year (FY) starting on or after 01.06.23, will apply  across all Emirates and will be applicable to allbusiness and commercial activities, except to the following persons (depending upon the conditions):

• Government Entity of UAE
• An entity controlled by the Govt of UAE ;
• A person involved in an Extractive Business in the UAE;
• A person involved in a Non-Extractive Natural Resource Business in the UAE;
• A Qualifying Public Benefit Entity;
• A Qualifying Investment Fund;
• Social security fund, public pension, or a private pension or social security fund that depends upon the State competent authority's regulatory oversight  and meeting any other conditions which might be provided by the Minister;
• A juridical person registered in the State that is wholly owned and controlled by some Exempt Persons; and
• Any other Person as may be ascertained in a decision which is issued by the Cabinet upon the suggestion of the Minister.

 The corporate tax rate is 0 per cent for taxable income, which does not exceed AED 375,000 or the qualifying income of a qualifying free zone person.

However, if the taxable income exceeds AED 375,000 or in case of Non-Qualifying Income Of A Qualifying Free Zone Person, the corporate tax rate shall be charger@ 9 per cent. 

Corporate Branch Income

In some Emirates, branches of foreign banks are governed by special banking tax decrees, under which they attract a tax of 20% of their adjusted taxable income.

Under UAE CT Law, a branch of a non-resident person could be considered a Permanent Establishment (PE) in the UAE, and the income attributable to such a branch could attract UAE CT.

In addition to this, the UAE doesn’t have a branch profits tax. Repatriation of profits between branches and their head offices doesn’t attract withholding tax (WHT) or other forms of repatriation tax in the United Arab Emirates.

Value-Added Tax (VAT)

The introduction of VAT in the United Arab Emirates was made on 01.01.18. The general VAT rate is 5% and is applicable on most goods and services, with some goods and services attract a 0% rate or an exemption from VAT (depending upon the meeting of specific conditions).

The 0% VAT rate is applicable to goods and services exported outside the VAT-implementing Gulf Cooperation Council (GCC) member states,the first supply of residential real estate, the supply of crude oil/natural gas, international transportation and some specific areas, such as health care and education.

Further, as per the Cabinet Decision dated 04.06.20, a person would be considered as being 'outside the state' and thus be falling under 0 -rating export of services upon having a short-term presence in the state of less than 1 month, and the presence isn’teffectively connected with the supply.

A VAT exemption is applicable to some financial services and to the subsequent supply of residential real estate. Further, transactions in bare land and domestic passenger transport are also exempted from VAT.

Some transactions in goods between companies established in UAE Designated (Free) Zones (DZs) might not attract VAT. The supply of services within DZs, however, attracts VAT according to the general application of the UAE VAT legislation.

For UAE resident businesses, the mandatory VAT registration threshold is AED 375,000, and the voluntary registration threshold is AED 187,500. No registration threshold is applicable to non-resident businesses that make supplies on which the UAE VAT is required to be levied.

VAT grouping is permitted upon meeting some conditions

There are some necessary paperary and record-keeping requirements, like the requirement for issuance of tax invoices and submission of VAT returns (on a  monthly or on a quarterly basis, depending on the allocation by the Federal Tax Authority, FTA).

Excess input VAT can, principally, be claimed back from the FTA, depending upon a specific procedure. Alternatively, VAT credits can be carried forward and deducted from future output VAT.

Businesses not complying with their VAT obligations shall be liable for fines and penalties. There are both fixed and tax-geared penalties.

Customs Duties

Generally, a customs duty of 5% is levied on the cost, insurance, and freight (CIF) value of imports. Other rates might be applicable to some goods, like alcohol and tobacco, and some exemptions and reliefs can also be available. Further, the United Arab Emirates levies anti-dumping duties on imports of some goods, such as ceramic and porcelain tiles, car batteries and hydraulic cement. The anti-dumping duty rates differ depending on the HS codes of the goods and the country of export and/or origin. In certain cases, the anti-dumping duty is 67.5% of the CIF value of the goods.

The UAE is part of the GCC Customs Union, established in 2003 for the removal of customs and trade barriers between the GCC member states. There is an absence of any customs duties on trade between the GCC member states (depending upon some conditions). Additionally, the United Arab Emirates grants duty-free imports to most national goods which have originated in member countries of the  European Free Trade Association countries (i.e., Switzerland, Norway, Iceland, and Liechtenstein) and Greater Arab Free Trade Agreement, Singapore

Although the UAE free trade zones (FTZs) are areas within the territory of the UAE, these are, however, considered to be outside the scope of the customs territory. Therefore, goods imported into the UAE FTZs don’t attract customs duty. Customs duty is suspended till the goods are imported into the GCC local market.

Excise Taxes

 The introduction of an excise tax on tobacco and tobacco products, energy drinks and carbonated drinks was made by UAE   on 01.10.17. which led to the expansion of the scope of excise tax to include electronic smoking devices and tools, sweetened drinks, as well as liquids used in electronic smoking devices and tools on 01.12. 19

The applicable tax rates are provided below

• 100% on tobacco and tobacco products, liquids used in electronic smoking devices and tools, electronic smoking devices and tools and energy drinks.
• 50% on carbonated drinks and sweetened drinks

Municipal 0r Property Tax

Most Emirates levy a municipality tax on properties, mostly by referring to the annual rental value. Generally, the tenants are obligated for the payment of such tax. In some cases, separate fees must be paid by both tenants and property owners. For instance, in the Emirate of Dubai, the municipality tax on the property is currently levied  5% for residential properties (paid by tenants) and 2.5% on annual rental value for commercial properties ( to be paid by property owners)

A registration fee can be imposed on the transfer of ownership of real property or land. These levies are levied and administered differently by each Emirate.

Withholding Tax

With the broader motive of having a simplified yet robust UAE CT regime for reducing the compliance burden for assessees, a 0% withholding tax shall be applicable to some types of UAE-sourced income derived by non-residents insofar as it isn’t attributable to a PE of the non-resident. The applicable withholding tax rate and the categories of income to which withholding tax is applicable may be set out in a decision issued by the Cabinet. Given the 0% withholding tax rate, it isn't expected that there shall be any registration or filing obligation.

Tax Administration

The tax administration in the UAE can be better understood through the below-mentioned aspects.

Tax Period

A Taxable Person’s tax period is the FY (the Gregorian calendar yr, or the 12-month period for which financial statements have been prepared) or part of the same for which a UAE CT return is needed to be filed. A Taxable Person can file an application to the FTA for changing the starting and ending date of its tax period or using a different tax period, depending upon the conditions to be set by the FTA.

Clarifications

A Person can file an application to the FTA for clarification with regards to any part of the UAE CT Law or for the conclusion of an advance pricing agreement for a transaction or arrangement. The confirmation in respect of the form and manner of the application must be done by the FTA.

Tax Assessment

A Taxable Person may be liable to a UAE CT assessment as per the Tax Procedures Law. In case of non-compliance to the CT Law during the assessment, penalties and fines ascertained per Tax Procedures Law could be levied. 

Other Points

The FTA has the responsibility for the collection, administration, and enforcement of UAE CT, while the MOF remains the 'competent authority'  for international tax agreements and the exchange of information for the purpose of tax.

General Anti-Abuse Rule

In tune with international best practice, the UAE CT Law includes general anti-abuse rules ('GAAR'), applicable to transactions arising from a tax advantage in the non-existence of a valid commercial reason or the tax advantage being the main or one of the main purposes of the transaction.

Where the GAAR is applicable, the FTA can determine that one or more specified CT advantages are to be counteracted or adjusted upon such a determination being made; the FTA should issue an assessment effectuating the determination and may make compensating adjustments to the UAE CT liability of any other Person affected by the determination.

In any proceeding regarding the application of the GAAR, the FTA must demonstrate that the determination made is just and reasonable.

Services provided by Enterslice

Effective tax planning can provide businesses with a competitive advantage while aiming for growth and expansion, even in challenging markets. Organizations are increasingly understanding the importance of addressing issues relating to corporate structures, evaluating jurisdictions where cross-border transactions are planned, and management of taxes with a view to enhancing competitiveness. Our Services include the following –

Corporate Tax Advisory

• Addressing the client’s queries with regard to the applicability of tax provisions as raised by the organization
• Review of transactions for adopting the tax positions
• Formulating tax-efficient structures
• Identification of the opportunities for the optimization of tax
• Regular updates
• Review of the withholding tax on transactions with foreign jurisdictions

Corporate Tax Implementation

• Conducting an impact assessment of the legal structure of the organization
• Impact analysis of the bottom line and profits after tax
• Review of the tx year opted by the company to be sufficient and modification of the same in case of insufficiency
• Review of the processes undertaken by the corporation to be in adherence with the prescribed tax rules and regulation

Corporate Tax Compliance

• Corporate Tax Registration
• Calculation of payable taxes
• Preparation of Corporate tax returns and other tax reporting requirements
• Review of the tax return prepared by the company
• Assistance with correspondence with the tax authorities in case of any queries being raised by them

M&A Advisory

• Tax due diligence
• Structuring an acquisition or disposition 
• Tax modelling 
• Vendor necessary paperation assistance 
• Positions and those of the acquired business

International Tax Planning

• International tax planning for business change, expansion into new jurisdictions and cross-border transactions
• International group restructuring
• Coordination of international tax reporting and global compliance management
• Group tax health checks
• Global capital structure planning, including efficient cross-border finance, repatriation and cash access planning.

Advisory on Customs and Excise

• Tariff determination, planning and ruling applications;
• Free trade Agreement assessment of rules of origin, calculation, ruling applications, and regulatory advice;
• Duty drawback advice, application, and implementation;
• Advice to free zone companies;
• Duty deferral/suspension schemes organization, application and implementation;
• Client risk review/audit;
• Standard operating procedure preparation;
• Post Clearance Audit management and representation;
• Export controls regulatory advice;
• Market access regulatory advice;
• Import and domestic products’ labelling and "made in" advice;
• Authorized Economic Operator advice, applications, and maintenance;
• Anti-dumping applications and defence;
• Supply Chain advice

Advisory on VAT

• VAT health check
• VAT compliance (VAT return preparation and submission)
• VAT audit support
• VAT dispute resolution
• Tax agency support
• VAT due diligence review
• VAT refund support
• Preparing and submitting the voluntary disclosures
• Preparing and submitting the VAT clarification requests to the Federal Tax Authorities.
• Preparing and submitting the VAT reconsideration requests to the Federal Tax Authorities.