Uae New Tax Rates 2022

UAE Corporate Taxes are to be imposed from June 2023. How will this affect RAK International & Free Zone companies?

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Starting from June 2023, the anticipated introduction of corporate taxes in the UAE will finally come into effect. Read below how this will affect businesses operating in the country, including those in Free Zones like Ras al Khaimah (RAK).   The new corporate tax regime in the UAE will subject businesses to a 9% tax rate on their profits. Large multinational companies with profits exceeding EUR 750 million will be subject to a 15% tax rate. However, businesses with taxable income not exceeding a threshold (expected to be AED 375,000) will continue to enjoy a 0% rate. To diversify its economy and also to avoid being sanctioned or penalised by organisations such as the EU, OECD and even the USA,  the United Arab Emirates (UAE) has announced the introduction of corporate taxes starting with effect from June 2023. The new tax regime is set to have far-reaching implications for businesses operating in the UAE, including those based in free zones such as the Ras al Khaimah (RAK) free zone. This comprehensive guide will discuss the UAE’s new corporate tax regime, its key features, exemptions, and the potential implications for businesses operating in the country. Looking to incorporate a RAK International company? Learn how to form a RAK IC here UAE’s Corporate Tax History Historically, the UAE has been a zero-tax jurisdiction, with no income tax levied on citizens and minimal corporate taxes imposed on businesses. Most of the state’s revenues came from the petroleum industry, with nationalised and private companies paying up to 50% tax on their revenues. Foreign banks, hotels, and restaurants in Dubai also paid certain taxes. However, with a growing focus on diversifying its economy away from petroleum, the UAE has gradually introduced new taxes to generate additional revenue. The first significant change came in 2018 when the UAE introduced a 5% VAT tax on consumer purchases. In January 2022, the government announced the new corporate tax regime, effective from the financial year starting on or after 1st June 2023. Overview of the New UAE Corporate Tax Regime Applicable Tax Rates The new corporate tax regime in the UAE will subject businesses to a 9% tax rate on their profits. Large multinational companies with profits exceeding EUR 750 million will be subject to a 15% tax rate, in line with the Global Minimum Corporate Tax Rate agreement. However, businesses with taxable income not exceeding a threshold (expected to be AED 375,000) will continue to enjoy a 0% tax rate. Taxable Persons The new tax regime will apply to residents and non-residents in the UAE. Residents include juridical persons incorporated or otherwise established in the UAE (including free zones), those effectively managed and controlled in the UAE, and natural persons conducting business activities there. Non-resident persons may be subject to corporate tax if they have a permanent establishment (PE) in the UAE, derive UAE-sourced income, or have a nexus in the UAE. Exemptions   Under the new tax regime, certain persons will be exempt from corporate tax, provided they meet specific conditions. These exemptions include the following: Persons engaged in the exploitation of UAE natural resources Government and government-controlled entities Qualifying public benefit entities Charities and public benefit organisations Pension or social security funds Qualifying investment funds Tax Base and Permanent Establishment The new tax regime introduces the concept of a “Qualifying Free Zone Person” (QFZP), which is broadly defined as a company or branch registered in a free zone, maintaining adequate substance in the UAE, deriving qualifying income, satisfying transfer pricing requirements, and meeting any other conditions prescribed through a Ministerial Decision. QFZPs will still be subject to corporate tax but may benefit from a 0% rate on their qualifying income. Free Zones and Qualifying Free Zone Persons UAE businesses will be subject to corporate tax on their worldwide income, with exemptions for dividend income and capital gains subject to the participation exemption. Non-residents will be considered to have a PE in the UAE if they have a fixed place of business or a dependent agent in the country. A Ministerial Decision will determine other forms of nexus that could create a PE. Key Features of the UAE Corporate Tax Regime Taxable Income Calculation As reported in standalone financial statements, the accounting income will be the basis for determining taxable income, subject to adjustments. Businesses will be able to carry forward tax losses indefinitely, subject to certain conditions, and offset up to 75% of taxable income in future tax periods. Taxable Income Calculation As reported in standalone financial statements, the accounting income will be the basis for determining taxable income, subject to adjustments. Businesses will be able to carry forward tax losses indefinitely, subject to certain conditions, and offset up to 75% of taxable income in future tax periods. Tax Groups A parent entity of a group can apply to the Federal Tax Authority (FTA) to form a tax group with its UAE subsidiaries, subject to certain conditions. Losses can also be transferred between entities outside of a group, provided a 75% ownership relationship exists, and other conditions are met. Withholding Tax Payments made by UAE businesses to non-residents earning UAE-sourced income will be subject to withholding tax at a 0% rate unless the income is attributable to a branch or PE located in the UAE. The Cabinet may specify other rates.   Transfer Pricing Transactions with related parties and connected persons must comply with the arm’s-length principle. UAE businesses must maintain transfer pricing documentation and submit it to the FTA within 30 days of a request.   General Anti-Avoidance and Transitional Rules The new tax regime includes general anti-abuse rules (GAAR) intended to disregard transactions or arrangements undertaken to obtain a corporate tax advantage. Transitional rules also apply from the date the law is published in the Official Gazette. Implications for RAK International Companies and Other Free Zone Companies The introduction of corporate taxes in the UAE will have implications for businesses operating in free zones, including those in Ras al Khaimah (RAK) and other

Avoid These Common Mistakes When Forming An Offshore Company

Avoid these common mistakes when forming an offshore company

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Avoid these common mistakes when forming an offshore company. While forming a company is relatively simple and can be accomplished online, a few set-up mistakes could cost you time and money. Fortunately, these are easy to avoid if you choose the right professional to work with and take a little time to get everything right.     The most common mistakes we see when a business is forming an offshore company include: Choosing an unsuitable jurisdiction It’s important to consider all of your options, including ongoing costs, what you might need in terms of accounting and audit obligations (if any). Tips for choosing the jurisdiction for your company: What are the ongoing annual costs – Apart from formation cost (by definition a onetime cost) there will also be annual costs. These costs include registered office, registered agent/company secretary which are always obligatory, plus accounting & audit obligations where applicable and finally optional costs such as a virtual office etc. Where are you planning to sell? There are different obligations depending on where you are planning to sell. For example, a company selling in the EU 27 area will almost certainly need to register for VAT (a form of Turnover Tax). Likewise a company trading in the USA needs to be aware of State Sales Taxes (which vary). Need more information or advice? Please contact us. Unsuitable banking arrangements A common mistake is that clients are trying to replicate what they are used to. e.g. bricks and mortar bank offering traditional services. It may well be that an e-wallet makes sense in many cases and gives greater flexibility. First, it is important to understand the difference between a bank and an e-Wallet (Digital Wallet or Neobank): Banks have traditionally served local customers and are set up for face-to-face interaction and telephone service. They tend not to work well across borders except in specialist areas, e.g. private banking. Their existence is being undermined by increasing regulation and the move towards digital banking. E-Wallets (also known as Neobanks or Digital Wallets) have rapidly increased their market share in the last twenty years or so, starting with PayPal in 1998. They specialise in fast transfers of funds, especially across borders, together with good exchange rates. Customer service is often limited unless you enjoy communicating with bots. Not being familiar with tax rules Tax law is constantly changing, and it’s essential to make sure you understand what applies in your chosen jurisdiction and how it will impact your personal tax position. e.g. is it better to take a salary or dividends? In several countries, including Singapore, salaries are generally taxed at the local rate, even for non-residents. This subject often requires professional advice to get it right. However, there is a danger of ‘letting the tax tail wag the dog’ at the expense of, say, ease of doing business in a particular jurisdiction and the total cost (both start-up and annual) of maintaining the company.   Insufficient research before starting Although it may sound obvious, not thoroughly researching your project can be a major reason for difficulties down the line.     Tip You should carry out extensive background reading on key topics related to both marketing strategies/uses (such as pricing) AND your customer demographics. For further detailed advice, please contact: TaiPan-International.com today to find out more.