UAE announces corporate tax to individuals and Here's a Tax-Free Zones

Cabinet Resolution No. (49) of 2023 has been issued, as announced by the United Arab Emirates Ministry of Finance today. For the purposes of the corporation tax law, this resolution covers the tax treatment of resident and non-resident individuals who operate firms or engage in other commercial activities.

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"The new decision confirms the UAE's commitment to implementing a competitive tax system for both local and foreign investors and individuals," said Younis Haji Al-Khoury, Undersecretary of the Ministry of Finance. For example, "by simplifying the corporate tax system, which contributes to enhancing the attractive business environment that supports the growth of small projects, startups, and the economy in general."

This change was made to simplify the process of applying the UAE's corporate tax system to individuals (natural persons) and to ensure that tax is only applied to the income or profits generated by the individuals' businesses. to engage in) is exempt from corporation tax, as individuals who operate businesses are only required to register for and pay corporate tax if their annual revenue exceeds AED 1 million. This is because it is generally accepted that people who engage in business activities are themselves engaging in business.

Methods for Figuring Out Your Own Tax Bill

For instance, the new decision mandates that an individual's business income obtained from his work via the Internet be subject to corporate taxation if the value of the business's annual combined sales is more than one million dirhams. Even if the person's annual sales are under a million dirhams, this is still the case.

However, the published decision indicates that the individual's rental property and personal investment income are not subject to company tax, hence the individual's total income is not subject to corporate tax. In this scenario, the person is exempt from paying corporate tax.

Free Zone Persons have distinct corporate tax implications in the UAE than a juridical person or an individual. Find out how Free Zone Persons (FZPs) fit into the business tax framework and how they differ from other types of taxpayers.

Who are the permitted individuals in the Tax-Free Zone?

Anyone doing business inside a Free Zone is considered to be a resident of that zone. On the other hand, you need to meet all the requirements below to be considered a Free Zone Person. If even one requirement isn't met, the Free Zone Person doesn't meet the criteria.

  • The company must have adequate substance in the UAE and keep it. This indicates that he is actually doing business in the UAE, as opposed to merely registering for tax purposes.
  • He is making what will be called "Qualifying Income" after the Cabinet makes its decision.
  • He follows transfer price regulations and keeps all necessary transfer pricing records.
  • He has not chosen to make a full payment on the business tax.

It is recommended that you periodically check the Ministry of Finance website for updates, since the Minister may impose additional requirements at a later date.

Just what does "eligible income" entail?

For Qualifying Free Zone Persons, the CT regime provides for a 0% CT rate on qualifying income and a 9% CT rate on taxable income that does not qualify as qualifying income. No statutory definition of "qualifying income" exists, and the Cabinet Decision of the CT system has not yet issued a decree outlining such a definition.

What do free zones have going for them?

The United Arab Emirates is home to over 40 free zones, each of which offers a variety of benefits. You can maintain full control over your business in a free zone, and the authorities there will protect the privacy of whatever data they collect about your company's assets. Businesses operating in a free zone are free to conduct business with anyone, regardless of whether or not they are also based in a free zone. You can import goods into a free zone without having to pay any customs fees or company taxes.

Companies operating in free zones have full repatriation benefits since their assets can be moved to other countries without any restrictions. These corporations include more streamlined procedures for starting a firm and more mature business communities.

Does the UAE company tax apply to Free Zone Persons?

If you meet the requirements to be considered a Qualifying Free Zone Person in the UAE, you will pay zero percent UAE corporation tax on your qualifying income and nine percent UAE corporate tax on the portion of your taxable income that does not qualify as qualifying revenue. Therefore, they will be subject to UAE corporation tax, but only at a 9% rate on taxable income in excess of their qualified income.

Can a Free Zone Person take advantage of the zero percent business tax rate?

If a Free Zone Person has not opted into paying the usual UAE corporate tax rate of 9%, then the rate will be 0%. When a person satisfies the criteria to become a qualifying Free Zone Person, the process initiates automatically. It's important to remember that any taxable income he earns that doesn't qualify as qualified income will be subject to the standard corporate tax rate of 9%.

Is it mandatory for a business operating in a Free Zone to register and submit a corporate tax return?

Businesses operating in a Free Zone are required to register with the Federal Tax Authority (FTA) online. While conducting business in a Free Zone, it is not necessary for the entity to meet the criteria to be considered a Free Zone Person. And whether or not his business qualifies for the lower rates that apply to qualified income, it still must file its tax return in accordance with the requirements of the applicable corporate tax regime.

Will corporations operating in tax havens be subject to a new set of regulations?

Both organisations will be subject to the same UAE corporate tax laws and regulations, thus there will be no difference. If they so choose, they can take advantage of either the 0% or 9% corporate tax rate. To take advantage of the 0% tax rate afforded to businesses operating within the Free Zone, they must first become Qualifying Free Zone Persons.

In what way will a Free Zone Person who also has a presence on the mainland be taxed?

If the Free Zone Person establishes a branch on the mainland and generates taxable revenue there, he will be subject to the standard corporate tax rate of 9%. But if he meets the requirements to be considered a Free Zone Person, he can take advantage of the 0% corporation tax rate on money earned in the Free Zone area, so long as he has separate books of accounts for the Free Zone and the rest of the country. If not, the Free Zone Person must pay a 9% corporation tax on all of its revenue, including that earned in the Free Zone.

How much of a tax hit will mainland trades by Free Zone Persons who don't have a branch take?

Free Zone Persons can conduct business with a company or companies operating in the UAE mainland even if the Free Zone Person does not have a branch there. If the mainland UAE income is classified as passive, the Free Zone Person can keep paying the 0% UAE corporation tax rate. These are things like dividends, royalties, and capital gains.

What are the tax implications of doing business with affiliated companies?

Whether or whether this is true is conditional on the specifics of the transaction being conducted. For instance, the cost of making payments to a Free Zone Person from a mainland group firm is not tax deductible. When dealing with Free Zone Individuals, UAE Mainland Companies will not be subject to the UAE's standard corporate tax rate of 0%. It streamlines the process of filing taxes.

Is there any way to deny a resident of a Free Zone the 0% tax rate?

Sure, that could work. If the Free Zone Person's eligibility requirements change, they may no longer be eligible for the 0% corporate tax rate. It is possible to disqualify a Free Zone Person from the 0% corporation tax regime by having him make revenue outside of the mainland, in which case the firm would be subject to the ordinary 9% corporate tax. In the future, further criteria for disqualification may be outlined.

Do FZ residents have the option of paying the standard 9% tax rate?

Yes, a Free Zone Person has the option of opting out of the 0% corporate tax rate in the UAE and instead paying the standard rate of 9%. Some analysts have speculated that such an election may be final and so subject to rules. Because of this, businesses should carefully consider how much corporation tax they are ready to pay before making the switch, as it can only be made once. In the future, if any additional requirements are introduced or amended, the relevant information may be updated on the Ministry of Finance website.

Will a Free Zone Person be subject to tax withholding?

The term "withholding tax" refers to the practise of having money set aside for tax purposes at the time of payment. The tax collector sends the money on to the government without any middlemen. Withholding tax can be levied at the 0% corporation tax rate when a Free Zone Person enjoys a 0% corporate tax regime on income earned from the mainland UAE.

Should someone living in a tax-free zone provide audited financial statements?

When filing company tax filings, a Free Zone Person is required to include audited financial statements. This will allow him to take advantage of the United Arab Emirates' (UAE) 0% corporate tax rate on his taxable income. The books of a company are inspected and analysed in order to perform an audit. It guarantees that no fraudulent activity or accounting problems will occur.

To what extent would the global minimum tax apply to companies based in Free Zones?

To date, the UAE's corporate tax code has not been updated to include compliance with the Pillar Two standards. With the implementation of the Pillar Two rules, qualifying Free Zone firms that are part of large multinational groupings will be able to have a varied corporation tax rate. The Frequently Asked Questions section of the Ministry of Finance is a likely place to get this info.

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