Corporate tax is a form of direct tax levied on the net income or profit of corporations and other entities from their business. On 31 January 2022, the Ministry of Finance announced that the United Arab Emirates (UAE) will introduce a federal corporate tax (CT) on business profits that will be effective for financial years starting on or after 1 June 2023. The UAE CT regime has been designed to incorporate best practices globally and minimize the compliance burden on businesses. The standard rate of CT will be 9%, which is the lowest among the GCC countries, except for Bahrain.
The introduction of CT in the UAE will have a significant impact on the financial performance of businesses operating in the country. Therefore, it is important for companies to conduct a corporate tax impact assessment (CTIA) to evaluate the potential implications of the new tax regime on their business activities, tax position, and tax strategy. A CTIA can help companies to identify tax risks and opportunities, and to plan ahead for the changes.
A comprehensive CTIA covers various key aspects, including:
- Tax Compliance: Assessing the company’s adherence to UAE tax laws and regulations, including the timely submission of tax returns and payment of taxes. A CTIA can help companies to understand the new reporting and filing requirements, and to ensure that they have adequate systems and processes in place to comply with them.
- Tax Accounting: Analyzing the impact of CT on the company’s financial statements, accounting policies, and disclosures. A CTIA can help companies to determine the appropriate accounting treatment for CT, such as deferred tax assets and liabilities, current tax expense, and effective tax rate.
- Tax Planning: Evaluating the impact of CT on the company’s tax strategy, tax incentives, and tax optimization. A CTIA can help companies to identify potential tax savings opportunities, such as loss carryforwards, group relief, transfer pricing, and cross-border transactions.
- Tax Risk Management: Identifying and mitigating the tax risks arising from the introduction of CT, such as tax audits, disputes, penalties, and reputational damage. A CTIA can help companies to implement effective tax risk management policies and procedures, such as tax governance, risk assessment, risk monitoring, and risk reporting.
A CTIA is a valuable tool for companies to prepare for the new CT regime in the UAE. It can help companies to understand their current tax position, anticipate the future tax implications, and implement appropriate actions to optimize their tax efficiency. A CTIA can also help companies to communicate with their stakeholders, such as shareholders, lenders, customers, suppliers, and regulators, about the impact of CT on their business performance.
Corporate Finance 