UAE private sector gears up for new corporate tax

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As the private sector awaits the publication of the UAE’s Federal Corporate Tax Law, Dubai-based CS Events has taken the initiative to organize back-to-back conferences to raise public awareness of tax on companies. The next edition of the UAE Corporate Tax Forum will be held in February 2023

Dubai, United Arab Emirates

News Highlights:

  1. The UAE has over 650,000 registered businesses. About 85% of them belong to the categories of micro, small and medium-sized enterprises (MSMEs);

  2. The majority of companies registered in the United Arab Emirates do not have an appropriate accounting system and documents, in particular those which are below the value added tax (VAT) threshold of Dh375,000;

  3. In 2020, tax and social security revenues fell by €215 billion in the European Union compared to 2019, to stand at €5,530 billion;

  4. Corporate tax revenue in the United States was US$372 billion in 2021. Forecasts predict that corporate tax revenue will increase to US$505 billion in 2032.

The UAE business community awaits the new UAE Federal Corporate Tax Law which will help businesses begin to prepare for the new corporate tax regime, officials said at the Business Tax Forum of the UAE organized by Cogent Solutions Events Management (CS Events) at Dusit Thani Hotel on September 15, 2022.

In January this year, the UAE government said it would introduce a 9% corporate tax for companies with net profits above Dh375,000 from June 2023, about five and a half years. after entering the 5% value. -Added tax (VAT) in January 2018. This obliges companies to provide for an appropriate accounting system and to publish annual financial audit reports, on the basis of which the corporate tax will be calculated. Companies will then need to file the audited financial report for corporation tax with the UAE Federal Revenue Authority (FTA).

The total revenue distributed at the state level in the UAE for VAT amounted to more than 95.4 billion dirhams (26 billion US dollars), since its implementation in 2018 until October 2021.

The government has so far issued a public consultation document on the subject. The new UAE Federal Corporate Tax Law, which will govern the corporate tax regime, has yet to be released. Officials from the UAE Business Tax Forum said the law could be enacted as early as this month, or no later than October this year.

“We expect the UAE Federal Corporate Tax Law to be released no later than next month, if not September, which will help businesses, tax advisors and accounting software vendors prepare for implementation by June next year,” Hany Elnaggar, Group Head of Direct and International Taxation, told delegates at the UAE Business Tax Forum.

“The introduction of any new tax is always a concern for taxpayers initially, as it affects company profits, until it becomes regular and becomes part of the corporate culture. However, concerns are growing due to lack of preparation and compliance issues. »

Around 85% of the approximately 650,000 UAE-registered businesses belonging to the Micro, Small and Medium Enterprise (MSME) categories in the UAE are moving from a tax-free environment to an unprepared or under-prepared tax regime while the account countdown continues. There will be no tax on profits up to Dh375,000, which will help small businesses.

The majority of businesses may not fall under the corporation tax regime. However, these companies may need to maintain an appropriate audited balance sheet with profit and loss statements to determine whether they are exempt from the corporation tax regime.

Alleviating public concern and fear, Seema Sharma, Head of Tax Group at Network International, said, “The UAE tax regime is very competitive. You only pay 9% corporate tax only above the net profit of Dh375,000. If the profit is less than the stipulated amount of Dhs 375,000, then the company has nothing to declare or fear. Initially, there were concerns about the introduction of corporation tax. But the fear and worries are fading now.

According to the most recent estimates from the International Center for Tax and Development, total tax revenue represents more than 80% of total government revenue in about half of the countries in the world – and more than 50% in almost all countries. The GCC countries have been an exception to these remaining largely exempt from corporate or personal income tax.

In 2020, tax and social security revenues fell by €215 billion in the European Union compared to 2019, to stand at €5,530 billion. Corporate tax revenue in the United States was US$372 billion in 2021. Forecasts predict that corporate tax revenue will increase to US$505 billion in 2032.

However, as a country, the UAE is new to taxation, as are the people living and businesses operating in the country.

Although businesses belonging to the MSME categories and therefore fall outside the scope of the UAE 9% corporate tax which applies to a minimum of MAD 375,000 of profits generated by businesses during one year of filing, they will still have to go through proper financial reporting and tax filing processes, even if that means “0” tax payable, experts say.

Most of them do not have a proper accounting system, let alone a financial reporting process, which will complicate the filing of their corporate tax returns.

In order to review the situation, raise awareness and help the private sector prepare for the UAE Corporate Tax, CS Events organized the UAE Corporate Tax Forum.

Nizam Deen, Founder and Managing Director of CS Events – organizer of the UAE Corporate Tax Forum, said: “UAE companies will begin the process of formal accounting and auditing – in order to migrate from a tax-free environment. there will be a cultural change over the next nine months to a tax regime environment.They will first have to adapt to a new mindset and way of thinking, and then get used to an accounting reporting process. and financially appropriate to begin with.

“However, for larger companies, it’s just an addition to their already robust accounting and auditing process.”

The event brought together 200 high-level delegates including CFO, CEO, Head of Tax, Head of Audit, Head of Finance, Account Manager from the region to gain knowledge and insights from top industry leaders and experts in the region on Corporate Taxation and its challenges.

The UAE Business Tax Forum featured interactive panel discussions and in-depth analysis of insights provided by experts such as Hany ElNaggar – Group Direct and International Tax Leader, Basel Abughazaleh, Regional Business Tax Leader MENAT at HSBC; Seema Sharma, Head of Tax Group at Network International; Nauman Asif Mian, CFO of Bayt.com; Francisco Sousa Soares, vice-president taxation at Taqa Group; Manish Arora, regional tax director at Schneider Electric; Faizan Dar, tax specialist in a large FMCG company; Aparna Lakshminarasimhan, Group Transfer Pricing Manager at GFG Alliance; Zeeshan Humayun, Director of Transfer Pricing at PwC, moderator.

The UAE Corporate Tax Forum also provided an opportunity for tax consultants, law firms and enterprise resource planning (ERP) solution providers to showcase their products and services and meet the needs of the sector.

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