Accounting income as reported in a company’s financial statements forms the basis for determining taxable income, with adjustments made for items such as the following:
- Dividend income and other profit distributions from a resident person
- Dividends and capital gains under the participation exemption
- Income received by a non-resident person from the operation or leasing of aircraft and ships in international transportation
- Profits or losses from business restructuring or intra-group transfers of assets and/or liabilities subject to certain conditions
- Net interest expenditure will be limited to 30% of EBITDA (earnings before the deduction of interest, tax, depreciation and amortisation)
- Entertainment expenditure will be deductible up to a limit of 50% of the amount incurred
A taxpayer’s income may be reduced by reasonable expenditure. Additional explanations are expected to be issued regarding non-deductible expenditure.
All taxpayers, including free zone companies, must register with the tax authorities and receive a registration number.
The tax period is the 12 months for which the company prepares statements, i.e., depends on the taxpayer’s financial year.
The filing of a return and the payment of tax must take place within 9 months of the end of a tax period or by another date as directed by the tax authority.
Transfer pricing rules now have increased importance in the UAE. Transactions with related parties must comply with the arm’s length principle. The wording used in the tax law to define the arm’s length principle and other aspects of transfer pricing is largely similar to the OECD standards. However, the definitions of related parties and connected persons are broader than the international standards.
The parent company of a group may apply to the tax authority to form a tax group together with its UAE subsidiaries subject to certain conditions being met. Parent companies of tax groups are only required to file one tax return.
Losses may also be transferred between entities not forming part of a tax group where there is an ownership interest of at least 75% and other conditions are met.
The development of tax reform in the UAE should be monitored in the context of international tax reforms (BEPS 2.0, especially Pillar 2).
In view of the above, it is advisable for companies and individuals with subsidiaries in the UAE to assess the impact of the new tax in the UAE. B1’s professionals are happy to help analyse the implications for companies and individuals and to provide support in registering with the tax authorities.