Maintenance and Audit of Financial Statements for Tax Compliance Under Federal and Ministerial Regulations in the UAE
Federal Tax Authority Decision No. 5 of 2023: Alterations in Tax Periods for Corporate Entities
UAE Corporate Tax Law: The Federal Tax Authority has issued Decision No. 5 of 2023, outlining criteria for altering corporate tax obligation periods. This decision is effective from June 1, 2023. It sets specific requirements that taxable entities must fulfill to change their tax period. Consequently, engaging certified tax consultants in the UAE is essential for precise determination of tax periods and ensuring compliance with current tax regulations.
Ministerial Decision No. 82 of 2023: Accounting Standards and Corporate Tax Compliance
Recent amendments to the UAE Corporate Tax Law are formalized under Ministerial Decision No. 82 of 2023. This law specifies which taxable entities must prepare and maintain financial statements audited per international standards. These audited statements are essential for applying a minimum corporate tax rate. To ensure smooth implementation of these regulations and maintain compliance, entities are advised to consult with professional tax advisors in the UAE.
Compliance Requirements According to Ministerial Decision No. 82 of 2023
Under the provisions of Ministerial Decision No. 82 of 2023, the following categories of entities are required to prepare and maintain audited financial statements:
- Compliance Deadline for October 1, 2023:
- Qualifying Public Benefit Entities
- Compliance Deadline for June 1, 2024:
- Qualifying Investment Funds
- Public Pension/Social Security Funds
- Private Pension/Social Security Funds
- Juridical entities either partially or wholly controlled by a Government Entity
Exemptions from Corporate Tax in the UAE
Entities in categories outlined in the Ministerial Decision might qualify for corporate tax exemption if they meet required criteria. Understanding and following these federal and ministerial decisions allow entities to navigate UAE’s complex tax landscape efficiently, ensuring compliance and reducing risks.
Thus, engaging specialized tax consultants in the UAE is crucial for proper guidance and execution of tax obligations.
Participation Exemption Criteria for Corporate Taxation in the United Arab Emirates
Ministerial Decision No. 114 of 2023 concerns Accounting Standards and Methods for corporate taxation. It mandates compliance with IFRS for all Taxable Entities.
Small and medium-sized enterprises (SMEs) with annual revenues below AED 50,000,000 must adhere to specific accounting methods outlined in the decision.
Financial Statements mentioned in the decision include comprehensive documents required by the applicable Accounting Standards. These encompass the Statement of Income, Statement of Other Comprehensive Income, Balance Sheet, Statement of Changes in Equity, and Cash Flow Statement.
Criteria for Modifying Tax Periods for Corporate Tax Obligations in the UAE
Ministerial Decision No. 116 of 2023 addresses the Taxation of Corporations and Businesses. It details criteria for Participation Exemption. The decision broadly defines ownership interests. These include, but aren’t limited to, holding Ordinary Shares and Preferred Shares. It also includes Redeemable Shares, Membership and Partnership Interests, and other securities, along with capital contributions. Rights that entitle owners to profits and liquidation proceeds are also included in ownership interests.
To determine if a Taxable Entity has a Qualifying Ownership Interest, all types of ownership interests are aggregated. Ownership interests in the same legal entity are considered during the aggregation of different types of ownership interests. Ownership interests of members of a Qualifying Group, in which the Taxable Entity is a member, are also combined. This combination helps in determining the eligibility of the Taxable Entity for Participation Exemption.
Small Business Tax Relief Under Corporate Tax Legislation in the UAE
Ministerial Decision No. 73 of 2023 aims to alleviate the corporate tax burden on small businesses by reducing compliance costs and stipulating a revenue threshold for tax relief eligibility. Small businesses are strongly encouraged to engage professional tax consultants in the UAE. For thorough evaluation of their tax obligations and to capitalize on available tax reliefs in accordance with UAE corporate tax laws.
According to the Decision, businesses registered in the UAE with revenues below AED 3 million for each relevant tax period are eligible for Small Business Tax Relief. It should be noted that if a business surpasses this revenue threshold in any given tax period, it will cease to qualify for the relief. This policy takes effect for tax periods commencing on or after June 1, 2023, and remains applicable for successive tax periods concluding on or before December 31, 2026.
Transfer Pricing Documentation Requirements for Corporate Taxation in the UAE
Transfer Pricing involves methods for setting prices in international transactions between related entities, impacting Corporate Tax in the UAE. Specifically, it occurs when an affiliate trades goods or provides services with its parent or another related entity. The transaction value, or “transfer pricing,” is based on what the parent would charge unrelated entities.
Multinationals often use transfer pricing strategically for allocating revenue between international and domestic operations. Under UAE’s Corporate Tax Law, specific provisions govern Transfer Pricing. Thus, businesses should consult specialized tax advisors in the UAE for compliance with these regulations.
Guidelines for Determining Tax Residency in the Context of UAE Corporate Tax
Ministerial Decision No. 27 of 2023, which implements certain provisions of Cabinet Decision No. 85 of 2022, outlines the criteria for determining tax residency in the UAE. To accurately assess and establish their tax residency status, taxable entities are recommended to seek professional consultation with UAE tax experts.
What Is Tax Residency?
Tax residency, per the Cabinet Decision, is the jurisdiction where a taxable entity pays tax on all revenues. For instance, a business considered a tax resident in the UAE will face corporate tax on income earned locally and internationally. The Cabinet Decision outlines specific criteria to determine if an individual or business qualifies as a tax resident in the UAE.