How immediately you should act on the implementation of UAE Corporate Tax?

In my 10 years career span I have seen businesses treating tax as a middle child. Who’s your real child, definitely important, but often gets neglected. Most of the time, this negligence lands you in unhappy situations.

UAE and the region have emerged in the tax world facing the same situation, and with new taxes, new taxpayers, and new tax regulating authorities; it all made sense. However, we witnessed the commitment of tax authorities to align with the international tax standards, raise awareness, and develop themselves. Workshops were conducted, guides were issued, and penalties were levied to an extent that large enterprises had to discontinue their operations.  We saw the landing of many businesses in what we called an unhappy situation.

In continuation of the aforementioned developments, we all are aware of the Corporate Tax announcement in the UAE. Another middle child, who needs your attention at the right time with the right focus. Businesses with no tax functions or professionals in the house are seemed to be on a wait and watch policy until their profits are taxable, i.e., from 2024 (for most of them). This article is for all the UAE-based businesses and their decision-makers for understanding how important it is for them to act immediately and the more time you would get is the less you will have, depending on the size of your business.

As we know, a building does not start from the surface, we need to develop strong foundations for a building to stand. There are multiple steps you would need to take before going live with the implementation of corporate tax in your business and each step will taketime. Below is the non-exhaustive list of the relevant points, you would need to know and work on before going live:

• Corporate tax (CT) is a direct tax, applicable to your business’ taxable income (accepted business profits)
• As an expense driving factor, you would want to cover the cost under your sales by increasing prices, and so would your UAE based supplier, resulting in the additional cost of sales
• You would be looking to hire tax professionals, and tax firms, develop tax functions to be prepared and comply with the new regulations
• You would need your IT systems to work per the CT compliance requirements and generate information accordingly
• Procedures and policies would be needed to ensure the compliance with CT regulations
• You would need to budget these costs; you may want to run the forecasted income statements for better budgeting and cash-flow ability assessments
• You may already have fixed assets registers, if not, you would need that to work your way back from depreciation, and amortization to the capital allowances (acceptable alternative from the tax authority)
• CT regimes offer a tax grouping feature to businesses under common control with certain conditions
• Tax grouping is usually beneficial for businesses from the administration and cost perspective side (single tax return, setting off losses between tax group entities, etc.)
• Due to the certain conditionsin the corporate tax law, you may need to restructure your group to comply with the CT law or optimize the tax allowances
• Transfer pricing rules would be applicable on related party transactions, you may have to re-price these transactions as per the CT regulations
• Functional analysis of each related party transaction may be required to set the prices on arm’s length basis
• Transfer pricing compliance for international transactions would require submitting certain documents (disclosure, local file, master file, etc.) in the UAE, most of the MNEs would be familiar with them and need to extend the scope
• A non-compliant practice would not only result in financial loss but would also damage the reputation of your department and organization. It would indicate a poor corporate governance

As I mentioned, it is a non-exhaustive list and can go on further depending on the nature and size of your business. But I believe it is enough to help you identify how immediately you would need to act probably with the initial impact assessment to implement a compliant and tax-efficient practice. In the end, you would not want to land in an unhappy situation, would you?

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

You can access Law including Guidelines, Cabinet & FTA Decisions, Public Clarifications, Forms, Business Bulletins for all taxes (Vat, Excise, Customs, Corporate Tax, Transfer Pricing) for all GCC Countries in the Law Section of GCC FinTax