Changes in Tax Regulations – What Businesses Need to Know in 2024

The UAE has announced a federal decree law. This decree-law implements a specific corporate tax UAE rate on taxable business profits. It is in effect above the specific threshold. Beginning from the 1st financial year starting on or after June 1, 2023, companies will fall under this corporate tax UAE. Particularly, this tax does not impose on private incomes like interest from bank deposits, savings programs, salaries, or distinct real estate investments.

What are the Key Updates in Tax Laws for Businesses?

In the evolving financial landscape of the corporate tax UAE, 2023 is marked as an essential year with the implementation of noteworthy changes in tax regulations. This revolution announces a tactical approach to Corporate Tax Regulations in the UAE that is impacting businesses both large and small. Here are some Key Updates in Tax Laws for Businesses in 2023;

• Corporate Tax Rate Adjustments

The base of this corporate tax UAE imposes the implication of a 9% corporate tax on profits of more than AED 375,000. This standard rate is valid for financial years commencing on or after June 1, 2023. It signals a shift in the financial paradigm. However, businesses producing less than AED 375,000 in taxable profit are not left untouched. They can enjoy exemption from corporate tax.

• Exemptions and Qualifications for Free Zone Establishments

The reach of corporate tax ranges to all businesses and branches within the UAE. It allows even the active land of Free Zone establishments. Particularly, entities working within Free Zones may benefit from a 0% tax rate, aligning themselves as “Qualifying Free Zone Persons” (QFZPs). To qualify for this 0% tax rate, Free Zone entities must meet explicit criteria, such as;

• A primary economic activity within the Free Zone
• The generation of a large portion of their income from outside the UAE

• Changes in Deductible Expenses

Changes in Deductible Expenses include a broad range of regular and essential business costs. They are eligible for deductions such as;

• Salaries
• Rent
• Utilities
• Travel
• Communication expenses

However, limitations apply to research and development costs. Particularly, certain expenses fall under the category of non-deductible expenses such as;

• Entertainment
• Fines
• Penalties
• Donations to Non-Approved Charities

Also, strict transfer pricing rules are compulsory to supervise transactions among associated parties that limit the handling of profits directed to low-tax jurisdictions. According to the Corporate Tax Regulations in the UAE, these changes aim to redefine the range of deductible expenses while guaranteeing integrity within business financial practices.

What are the Compliance and Reporting Modifications in UAE?

Directing the continually evolving land of corporate tax regulations in the UAE presents a challenge for both businesses and entities. Here are the Compliance and Reporting Modifications in UAE;

• Updated Filing Timelines

Regarding Corporate Tax Returns, the deadline, earlier set for June 30th, has now been prolonged to September 30th, 2024. This extension offers businesses with extra time to establish their financial records and collect their returns precisely.

While monthly and three-monthly VAT return deadlines remain unchanged, the Federal Tax Authority (FTA) has applied a grace period of 5 working days for late filings. However, overdue payments still sustain consequences.

• New Reporting obligations

Enterprises involved in associated-party transactions above AED 32.5 million must formulate and keep all-inclusive transfer pricing documentation, such as supportive evidence for pricing practices.

Businesses declaring UAE tax residency must show significant economic activity that showcases qualified employees, physical sites, and suitable expenditure within the UAE. Non-compliance might result in the rejection of tax residency.

• Implications of Tax Code Adjustments

The beginning of a 9% Corporate Minimum Tax (CMT) in 2023 significantly affects entities with low taxable profits or experiencing losses. It just applies to profits above AED 375,000. This alteration might intensify the tax liability for some entities. Also, the excise tax now includes additional goods and services. Businesses dealing in these products must adjust their reporting and payment practices accordingly.

What are the updated Incentives and Tax Credits for Businesses?

UAE has introduced a range of tailored tax incentives and credits to help the business’s development. Here are some Tax Credits and Incentives for Businesses;

• Fostering Sustainable Initiatives

• Entities investing in green technologies can withhold up to 30% of their expenses from taxable income. It promotes eco-friendly practices and the UAE’s sustainability goals.
• Companies employing Storage technologies enjoy a 100% deduction of associated expenses. It incentivizes a reduction in compliance with the UAE’s net-zero objectives.

• Empowering SMEs

• Advanced procedures and dedicated support agencies rationalize the setup process that cultivates a startup-friendly network.
• Government grants incentivize small and midsize enterprises (SMEs) to improve staff skills and boost competitiveness and efficiency.
• Government locating programs rank bids from small and midsize enterprises that catalyze their development through rewarding contracts.

Conclusion

As Corporate Tax Regulations in the UAE transform, they carry significant changes that demand deep attention from businesses. Staying up-to-date on these changes is essential to ensure compliance and handle the transformed financial landscape. Among these changes, expert guidance from trustworthy firms like Corporate Tax UAE becomes precious. Adapting to the updated corporate tax landscape is dynamic for businesses to enhance benefits, comply with protocols, and flourish in this dynamic economic land.