Corporate taxation is a vital component of every country’s economic framework, providing essential revenue for national growth and development. For the UAE, an oil-dominated economy, the introduction of corporate tax marks a significant step toward revenue diversification and compliance with international tax standards. This article delves into the implications of tax losses on UAE corporate tax, outlining how businesses can navigate the new tax landscape effectively.
Introduction to UAE Corporate Tax
Starting from the financial year in June 2023, the UAE will implement corporate taxes on business and commercial activities across all seven emirates. This move aims to establish the UAE as a global business hub, complementing earlier initiatives like the introduction of value-added tax (VAT) in 2018. Notably, free zones remain exempt from this corporate tax system, along with several other exemptions designed to ease the burden on businesses and individuals.
Key Points on UAE Corporate Tax
Calculation and Rates
Corporate tax in the UAE will be calculated annually, with businesses required to determine their taxable income by making specific adjustments to their accounting income. The taxable income must be expressed in UAE Dirhams. Corporate tax rates are as follows:
– 0% for income up to AED 375,000
– 9% for income exceeding AED 375,000
For instance, if a company’s financial statements show an income of AED 580,000, the corporate tax calculation would be as follows:
– Income up to AED 375,000: 0% tax rate
– Income exceeding AED 375,000 (AED 205,000): 9% tax rate, resulting in a tax liability of AED 18,450
Exemptions and Deductions
Certain types of income are exempt from corporate tax to avoid double taxation. These include:
– Dividends earned from foreign permanent establishments
– Capital gains from participating interest of less than 5%
– Individual income
All business expenses are deductible, subject to specific conditions.
Adjustments on UAE Corporate Tax
When calculating corporate tax, several adjustments must be considered, including:
– Unrealized gains or losses as per Article 20 of the CT law
– Exempt income under Chapter 7 of the CT law
– Reliefs claimed under Chapter 8 of the CT law
– Deductions under Chapter 9 of the CT law
– Transactions with related persons or connected parties (Chapter 10 of the CT law)
– Tax loss relief under Chapter 11 of the CT law
– Special incentives for qualifying business activities or entities
Tax Loss Provisions
Tax Loss Relief
Tax loss relief allows a taxable person to offset their tax losses against subsequent tax periods to determine net taxable income. This provision ensures that businesses can manage losses efficiently and reduce taxable income in future periods.
Transfer of Tax Losses
Tax losses can be transferred to another taxable person, provided certain conditions are met. Both entities must be juridical persons, residents, and non-exempt from tax.
Formation of Tax Groups
Resident persons can form tax groups, with one acting as the parent company and the others as subsidiaries. This arrangement can streamline tax administration and optimize tax liabilities across the group.
How Unicorn Global Solutions Can Help
Navigating the complexities of UAE corporate tax requires expert guidance. Unicorn Global Solutions offers comprehensive services to assist businesses in calculating and filing their corporate taxes. Our skilled tax professionals ensure compliance with all relevant laws and regulations while minimizing tax liabilities. We provide tailored tax planning, preparation, and submission services, allowing you to focus on growing your business.
With Unicorn Global Solutions, you can be confident that your tax matters are handled with precision and care. Contact us today to learn more about how we can assist you in managing your corporate tax obligations efficiently. Text us on WhatsApp or call us today.
