- The UAE has more than 650,000 registered businesses. About 85 percent of them belong to Micro, Small and Medium Enterprises (MSME) categories;
- Majority of the businesses registered in the UAE do not maintain proper accounting system and paperwork, especially those who are under the Dh375,000 Value-Added Tax (VAT) threshold;
- In 2020, revenue from taxes and social contributions decreased by EUR 215 billion in the European Union compared with 2019, to stand at EUR5.53 trillion;
- Revenue from corporate income tax in the United States amounted to US$372 billion in 2021. The forecast predicts an increase in corporate income tax revenue up to US$505 billion in 2032.
The UAE’s business community is waiting for the new UAE Federal Corporate Tax Law which will help the companies to start preparing for the new corporate tax regime, officials said at the UAE Corporate Tax Forum organised by Cogent Solutions Events Management (CS Events) at Dusit Thani Hotel on September 15, 2022.
The UAE Government in January this year said, it will introduce 9 percent corporate tax on businesses with net profits of more than Dh375,000 starting from June, 2023, about five-and-a-half years after the introduction of the 5 percent Value-Added Tax (VAT) in January 2018. This requires companies to make provision for proper accounting system and issue annual financial audit reports, based on which the Corporate Tax will be calculated. Companies will then have to file the audited financial report for corporate tax with the UAE Federal Tax Authority (FTA).
The total revenue distributed at the state level in the UAE for VAT has amounted to over Dh95.4 billion (US$26 billion), since its implementation in 2018 till October 2021.
The Government has so far issued a Public Consultation Document on the subject. The new UAE Federal Corporate Tax Law, that will govern the Corporate Tax regime, is yet to be issued. Officials at the UAE Corporate Tax Forum said, the law could be issued as early as this month, or latest by October this year.
“We are expecting UAE Federal Corporate Tax Law to be issued latest by next month, if not in September, which will help businesses, tax advisors and accounting software vendors to prepare themselves for the implementation by June next year,” Hany Elnaggar, Group Head of Direct and International Tax, told the delegates at the UAE Corporate Tax Forum.
“Introduction of any new tax is always a concern for the taxpayers initially as it affects the profits of the company, till it becomes regular and part of the corporate culture. However, concerns grow due to lack of preparedness and compliance issues.”
About 85 percent of the UAE’s roughly 650,000 registered businesses that belong to the Micro, Small and Medium Enterprises (MSME) categories in the UAE, are shifting from a tax-free environment to a tax regime unprepared or under-prepared while the countdown continues. There will be no tax on profits of up to Dh375,000, in a move that will help small businesses.
Majority of the companies might not come under the purview of the Corporate Tax regime. However, these companies might have to maintain a proper audited balance sheet with profit and loss statements to determine whether they are exempted from Corporate Tax regime.
Alleviating the public concerns and fear, Seema Sharma, Group Head of Tax at Network International, said, “The UAE tax regime is very competitive. You only pay 9 percent Corporate Tax only above the Dh375,000 net profit. If the profit is less than the stipulated amount of Dh375,000, then the company’s have nothing to declare or fear. Initially, there were concerns on the introduction of Corporate Tax. But the fear and concerns are withering away now.”
According to the most recent estimates from the International Centre for Tax and Development, total tax revenues account for more than 80 percent of total government revenue in about half of the countries in the world – and more than 50 percent in almost every country. The GCC countries have been exception to these – remaining largely free from corporate or personal income tax.
In 2020, revenue from taxes and social contributions decreased by EUR 215 billion in the European Union compared with 2019, to stand at EUR5.53 trillion. Revenue from corporate income tax in the United States amounted to US$372 billion in 2021. The forecast predicts an increase in corporate income tax revenue up to US$505 billion in 2032.
However, as a country the UAE is new to taxation, so as the people living and the businesses active in the country.
Although businesses belonging to the MSME categories and therefore might not come under the purview of the 9 percent UAE Corporate Tax that is applicable on a minimum of Dh375,000 profits generated by businesses in a year of reporting, they however, will still have to undergo proper financial reporting and tax filing process, even if it means ‘0’ payable tax, experts say.
Most of them do not have proper accounting system, let alone financial reporting process that will make it difficult for them to file their corporate tax returns.
In order toexamine the situation, create awareness and help the private sector prepare for the UAE Corporate Tax, CS Events organised the UAE Corporate Tax Forum.
Nizam Deen, Founder and Chief Executive Officer of CS Events – organiser of the UAE Corporate Tax Forum, said, “The UAE companies will start the process of formal accounting and auditing process – in order to migrate from a tax-free environment to a tax regime – a cultural shift in the next nine months. They will have to first adjust to a new mindset and a new way of thinking, then get used to a proper accounting and financial reporting process – to start with.
“However, for the larger companies, this is just an addition to their already strong accounting and auditing process.”
The event was attended by 200 senior delegates which includes the CFO, CEO, Head of Tax, Head of Audit, Head of Finance, Head of Accounts within the region to gain knowledge and insights from the top industry leaders and experts from the region about Corporate Tax and its challenges.
UAE Corporate Tax Forum featured interactive panel discussions and deep dive into insights derived from the experts such as Hany ElNaggar – Group Direct and International Tax Leader, Basel Abughazaleh, Regional Business Tax Leader MENAT at HSBC; Seema Sharma, Group Head of Tax at Network International; Nauman Asif Mian, Chief Financial Officer of Bayt.com;, Francisco Sousa Soares, Vice President Tax at Taqa Group; Manish Arora, Regional Tax Manager at Schneider Electric; Faizan Dar, Tax Specialist at a leading FMCG Company; Aparna Lakshminarasimhan, Head of Group Transfer Pricing at GFG Alliance; Zeeshan Humayun, Director for Transfer Pricing at PwC, Moderator.UAE Corporate Tax Forum also provided an opportunity for tax consultant, law firms and Enterprise Resource Planning (ERP) solutions providers to showcase their products and services and cater to the needs of the industry.