The UAE has long been known for its business-friendly policies and tax-free environment. However, the UAE has been looking to diversify its revenue streams with the global economic landscape constantly evolving. In January 2023, the UAE announced the introduction of a new federal corporate tax law to promote economic growth and broaden its revenue base.

This new tax law marks a significant departure from the previous tax-free environment, as it imposes a 9% corporate tax rate on companies operating in the UAE, with some exemptions and deductions available. UAE businesses must stay informed about the new corporate tax regulations to ensure compliance and avoid potential penal consequences.

The Taxman Cometh: What UAE’s Corporate Tax Means for Taxable Entities

The new corporate tax will come into effect on 1 June 2023 and apply to financial years commencing on or after that date. The corporate tax rate is set at 9% and will only apply to taxable income exceeding AED 375,000. Any income below this threshold will not be subject to tax.

Under the new law, resident companies will be taxed on their worldwide income, meaning any income derived from inside and outside the UAE. To be considered a tax resident of the UAE, a legal entity must meet specific criteria, including being established under UAE law, being effectively managed and controlled in the UAE even if established under foreign law or being determined as a tax resident by the tax authorities.

Meanwhile, non-resident companies will be subject to corporate tax under specific circumstances, such as having a permanent establishment in the UAE, deriving UAE-sourced income, or having a nexus in the UAE as determined by the tax authorities.

Free zone entities will also be subject to tax on non-qualifying income. The tax authorities will define qualifying income in due course.

Tax Breaks for the Lucky Few: Who’s Exempt from Corporate Tax in the UAE?

Certain entities will be exempt from the corporate tax. These exempt entities include government entities and government-controlled entities, as well as those engaged in extractive or non-extractive natural resource businesses. The exemption will ensure the growth of the UAE’s financial services and the oil and gas sector.

Qualifying public benefit entities, investment funds, and public or private pension or social security funds that meet certain conditions are also eligible for exemption.

Keeping Records: Your Key to Tax Compliance

Taxable entities will be required to maintain accurate records and documents for 7 years after the end of the relevant tax year. These records will be essential to back up the information provided in tax returns or any other documents filed with the tax authorities and will help the tax authorities determine the taxable income.

But it’s not just taxable persons who need to keep records. Even if you’re exempt from tax, you still need to maintain records that will allow the tax authorities to verify your exempt status. These records should also be kept for 7 years after the end of the relevant tax year.

Tick Tock Taxpayers: Deadlines for Tax Returns and Payments

Taxpayers must file a tax return within 9 months from the end of the tax year. They must also make corporate tax payments within 9 months from the end of the tax year. The good news is that taxpayers are not required to make advance corporate tax payments.

Although registration for e-filing of tax returns under the new federal corporate tax regime is yet to be notified by the FTA, the tax returns can be electronically filed on the EmaraTax portal of the tax administration once it is announced.

From Compliance to Optimization: Enhance Your UAE Business Operations

As UAE sets its sights on diversifying its economy, the recent announcement of a federal corporate tax law signals a new chapter for businesses operating there. Moglix supports businesses in the UAE, offering solutions to streamline procurement processes. Contact us to learn more.

The celebration of one year since the signing of the India-UAE Comprehensive Economic Partnership Agreement (CEPA) has begun, marked by the establishment of the UAE Chapter of the India Business Council (UIBC-UC), which corresponds to the existing UIBC-India Chapter. The purpose of this initiative is to strengthen trade and investment between India and the UAE, promoting economic ties and fostering prosperity. Now, it is essential to examine the significance of the India-UAE economic partnership and the advantages of the CEPA agreement that have been realized thus far, as we reflect on the past year.

Agreement – India-UAE Economic Partnership

The landmark CEPA agreement—the first-ever bilateral trade deal for the UAE and India’s first FTA foray in the MENA region—was signed on February 18, 2022, to propel economic progress, market openness, regional integration, and strategic cooperation. It aimed to transform India-UAE trade relations by reducing and removing tariffs on over 80% of the product lines (90% in value terms) and augmenting services trade to $15 billion by enhancing market access. The CEPA pact also targeted investment facilitation, targeting $75 billion worth of investments from the UAE, by directing funds to India’s priority sectors and enabling collaboration with SMEs.

However, the biggest CEPA agreement’s opportunity lies in its ability to secure supply chains, thus putting this relationship on track to achieving $100 billion in non-oil annual trade by 2027.

Impact – CEPA

In the eight months since the agreement came into effect on May 1st, 2022, the India-UAE economic partnership has undergone a colossal transformation. Some of the major CEPA agreement benefits are:

• The bilateral trade value rose 27.5% YOY to reach $57.8 billion in the first eight months of operation in 2022, growing $12.5 billion from last year .
• In less than a year, non-oil trade between the UAE and India has grown 10 per cent – a surge of $50 billion.
• Sectors like agriculture, automobiles, electrical machinery, and gems and jewelry reported 39%, 35%, 28%, and 18% value-based export growth, respectively.

Opportunities – India UAE Investment

• Over 11,000 Indian companies got themselves registered in Dubai in the past year alone, and now their total is in excess of 83,000, signaling a strengthening of bilateral economic linkages.
• A Dubai Incubation Center for encouraging innovation in logistics was set up by DP World in collaboration with Invest India under the ambit of the CEPA agreement.
• The Ducab Group launched a Bengaluru-based regional office to provide its metal and cable products to the Indian construction and energy sectors.
• The CEPA agreement’s impact can also be seen in the sustainability space, with the setting up of a 300 MW renewable energy project in Gujarat and ecological food parks across India.

Prospects – India UAE FTA

That’s not all. With initiatives like virtual trade corridors and the establishment of the Abu Dhabi Investment Authority’s offices in GIFT City on the anvil, the India-UAE collaboration is expected to scale higher. UAE’s private sector also plans to invest $2.5 billion in logistics, renewable energy, food processing, and retail projects in Uttar Pradesh.

Last year has been phenomenal, the CEPA agreement has resulted in a fusion of the financial, technological, and human capital of both nations, thereby serving as a fertile ground for economic prosperity and innovative cross-border collaboration. India-UAE CEPA has the potential to become a model for other countries seeking to strengthen economic ties with the UAE. The CEPA agreement has already demonstrated its success in boosting trade and investments between India and the UAE. It has provided a framework for enhanced economic cooperation, including in sectors such as services, investment, and intellectual property. Moreover, the establishment of the India Business Council-UAE Chapter has facilitated further collaboration and networking between the two countries. These developments signify the effectiveness of the India-UAE CEPA as a potential model for other countries looking to deepen economic ties with the UAE.