A public consultation document has been released by the UAE Ministry of Finance (MoF) inviting comments from stakeholders providing the businesses to play a key role in formulating the UAE Corporate Tax law.
Even Though there is no individual income, activities an individual performs with a commercial license will be tax applicable. Companies operating in the natural resource extraction, charities, pension funds, investment funds, e.t.c will be exempted by the Federal government, Emirate government & their departments. UAE Corporate Tax regime will honour the tax incentives currently being offered. Audited financials are a compulsory record for the Corporate Tax system.
Corporate Tax is at 0% for the following income sources:
- Transactions with businesses located outside the UAE
- Trading with businesses located in the same or other free zones.
- Certain regulated financial services are directed at foreign market goods sale (from VAT Designated Zones) to customers on the mainland if the customers are the importer-on-record.
- Also, ‘Passive income’ of the FZ company, which does not have any branch on the mainland.
‘Passive income’ includes interest and royalties, dividends and capital gains from owning shares in mainland UAE companies. Income from transactions with group companies located in mainland UAE is also a passive income, but such payments/expenses made by mainland group companies to FZ company will not be a deductible expense.
Free zone entities mainland branches will be taxed at the regular tax rate on mainland income. Also, if the free zone entities can be a regional sourcing hub, then the payments made by mainland entities will not be a deductible expenditure.
All other Free Zones company’s income sources are likely to be CT subjected. For exact expense allocation & income determination, a robust accounting procedure must be maintained. They can reverse their decision and obey the regular corporate tax rate.
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