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UAE Corporate Tax 2023: Implementation of the Federal Corporate Tax

27.05.2023

The Corporate Tax Law will come into force in the United Arab Emirates on 1 June 2023. With this, the government is introducing new principles for the taxation of companies. The regulations comprise a tax rate of 9%. The Ecovis experts explain in detail what companies and investors can expect in the future.

Introduction: Background information on the UAE as a strategic business objective

The United Arab Emirates (UAE) is a leading business hub and a global financial centre, offering various incentives and benefits to attract foreign investment. In December 2022, the UAE government introduced a federal law decree for the implementation of federal corporate tax. The region had previously been a tax haven for businesses, with a “nil” tax on profits and gains earned in the UAE except for the tax on profits earned from oil exploration.

The Corporate Tax Law will now come into effect from 1 June 2023, and its implementation is expected to support the UAE’s strategic objectives, accelerate its development and transformation, and enhance its competitive position as a business destination.

The law incorporates principles that are widely accepted and understood globally, making it clear and predictable for taxpayers. Furthermore, the UAE seeks to align itself with new international standards, particularly the move towards a global minimum tax on multinational corporations endorsed by the G20.

Which Tax Rates Will Apply in the Future?

The UAE corporate tax will be implemented on 1 June 2023 and apply from the beginning of the first financial year starting on or after that date. Businesses will be liable to pay tax of 9% on taxable profits of more than AED 375,000 (1.000 AED is the equivalent of around USD 272). There will be zero taxation on taxable incomes less than or equal to AED 375,000. There are also some reliefs and exemptions in the UAE corporate tax regime, such as for small businesses whose total revenue in the previous and current fiscal year does not exceed AED 3 million.

Artificial fragmentation of business operations to obtain the benefit of the minimum threshold is squarely covered under the GAAR provision of Article 50 of the CT Law and such arrangement shall be disregarded. Thus, the maximum income chargeable at zero percent tax will be only AED 375,000.

Do you have business relationships in the UAE or want to invest? We can advise you on the newly introduced corporation tax.

Rameshwar Lal Kabra, Chairman Emeritus, ECOVIS RKCA Mumbai, India

Exemptions From the Corporate Tax

Non-resident persons that do not have a permanent establishment (PE) in the UAE or earn UAE-sourced income not related to their PE may be subject to withholding Tax (WHT) at 0%. This implies that only non-residents with a PE in the UAE will be required to pay taxes.

Also, a non-resident person who is earning only state-sourced income will not be taxed in the UAE in the absence of a WHT. However, as WHT rates are expected to rise from 0% in the future, the WHT could become the final liability for non-residents.

The following persons are exempt from registration under corporate tax law:

• A government entity
• A government controlled entity
• A person engaged in an extractive business
• A person engaged in a non-extractive natural resource business
• A non-resident person that derives only state-sourced income and does not have a PE in the UAE

Revenue Threshold and Small Business Regulation

• The revenue threshold for the purpose of small business relief as per Article 21 is set at AED 3,000,000
• This threshold applies from 1st June 2023 to 31st December 2026
• The threshold must be checked for any of the applicable tax years
• A qualifying free zone person and a constituent entity of an MNE group (revenue > AED 3.15 billion) are not eligible for small business relief

From the text of the decision, it can reasonably be concluded that the taxpayer is free to opt in or out of this relief at their choice for each year. This relief is aimed at encouraging small businesses and start-ups and it also keeps small businesses outside the ambit of preparing transfer pricing documentation, which can be a costly affair.

Mandatory Audited Accounts

Under the powers defined in Article 54(2) of the corporate tax law, the Ministry of Finance has issued a list of persons who are required to prepare and maintain audited financial statements. This list includes:

• A taxable person with revenue exceeding AED 50 million
• A qualifying free zone person

The Definition of Micro, Small and Medium-sized Enterprises in UAE

In Dubai micro, small and medium enterprises (MSME) are defined as follows:

Source: Dubai SME, an agency of the Department of Economic Development

The threshold to prepare and maintain audited financial statements is kept at a higher level to prevent micro and small businesses from falling into this ambit. Moreover, a free zone person who wishes to take advantage of the beneficial corporate tax rate of 0% will also have to maintain audited financial statements.

The major developed free zones already require the free zone entities to prepare audited financial statements in to obtain the benefits of the free zone, but this decision makes it a general principle across the UAE.

Conclusion: The Importance of Corporate Tax for Multinational Companies

The UAE’s move towards a global minimum tax on multinational corporations, endorsed by the G20, highlights its commitment to international tax reform and the readiness to work collaboratively with other countries to ensure a level playing field for all businesses. Overall, the introduction of corporate tax in the UAE is a significant milestone in the country’s economic development, and its successful implementation will have positive implications for the country’s future economic growth and prosperity. Nevertheless, the tax rates remain very moderate and are among the lowest of any double taxation avoidance agreements with India.

For further information please contact:

CA R.L. Kabra, Chairman Emeritus, ECOVIS RKCA, Mumbai, India
Email: rl.kabra@ecovis.in

Digital Advertising Vietnam: Regulations on Cross-border and Digital Advertising Services

25.05.2023

Decree No. 70/2021/ND-CP (the decree), which came into effect in Vietnam on 15 September 2021, regulates the provision of cross-border and digital advertising services. The aim is to prevent illegal content and misleading or unethical advertising practices by offshore advertising service providers. However, companies are still not complying with the current rules, and they now face penalties. The experts from ECOVIS Vietnam OC Law explain the details of the decree again.

Key takeaways and central points of the decree

• Decree 70 regulates the provision of cross-border and digital advertising services in Vietnam, with a focus on preventing illegal content, and misleading or unethical practices.
• Offshore advertising service providers are required to provide state agencies with certain contact details and take down infringing content upon request.
• There is still inadequate compliance with the regulations, prompting authorities to issue warnings and threaten enforcement actions against non-compliant companies.
• Companies should comply promptly with the applicable advertising requirements to avoid adverse enforcement actions.
• Where adequate compliance is not feasible, an official letter should be sent to authorities to explain the situation.

Detailed Analysis

Under the decree, offshore advertising service providers are required to notify the Vietnamese Ministry of Information and Communications (MIC) of certain contact details, including the location of servers used to render advertising services. Failure to comply with this requirement could lead to sanctions, including the suspension of services by data centre service providers or ISPs.

In addition, offshore advertising service providers must take down infringing content upon request by state agencies. The MIC has already published a list of 98 websites which showing signs of breaking the law, with which companies are not permitted to cooperate in running advertisements.

We support you in assessing whether advertising content is legal in Vietnam.

Nguyen Nhuan, Partner, ECOVIS Vietnam OC Law, Ho Chi Minh City, Vietnam

Despite the decree and the publication of the list of infringing websites, compliance with the regulations remains inadequate. In a recent conference hosted by the MIC, it was reported that only nine offshore enterprises had notified the agency of their contact details. The head of the MIC’s Authority of Broadcasting and Electronic Information (ABEI) even explicitly named several tech giants failing to comply with the duty of notification and the agency has expressed its intention to block these companies’ business in Vietnam should they continue to ignore the law.

The Vietnamese authorities have shown a determination to strictly enforce the decree against offshore advertising service providers. Companies should comply promptly with applicable advertising requirements to avoid the risk of adverse enforcement actions. Where adequate compliance is not feasible, it is necessary for companies in the advertising industry to send an official letter seeking formal guidance from competent authorities on any unclear regulations in applicable laws.

For further information please contact:

Nguyen Nhuan, Partner, ECOVIS Vietnam OC Law, Ho Chi Minh City, Vietnam
Email: nhuan.nguyen@ecovislaw.vn

Treading a Fine Line: 2024 Budget Australia

23.05.2023

What does the recently announced federal budget mean for Australians? ECOVIS Clark Jacobs in Australia examines the key measures.

On Tuesday May 9th, the Australian Government handed down the 2023/2024 budget. At the headline level the budget confirmed that for 2022/2023 Australia actually ran a surplus for the first time in 15 years due to high commodity prices driving up taxation revenue. However, this once off surplus is not projected to continue, with persistent deficits being forecast over the next five years.

Real gross domestic product (GDP) growth for 2023/2024 is forecast to be a paltry 1.5%, while inflation is expected to moderate from the current 7% down to around 3.25%. Unemployment is expected to tick up slightly to 4.25%, while wages growth of around 4% is forecast.

On the taxation side of the budget, the Government tinkered around the edges to raise some additional, uncontroversial revenue. Measures included:

• Increasing the taxation rate for superannuation balances of $3 million or more from 15% to 30%. This will impact 80,000 of the 23 million superannuation accounts in Australia and raise $2.3 billion per year.
• Amending the petroleum resource rent tax to raise $33.8 billion over 4 years.
• Legislating the global minimum 15% corporate tax rate in Australia.
• Increasing tobacco taxes by 5% per year for the next 3 years.

Overall, the Government has tried to offend no-one, bank the savings of the revenue windfall received while trying not to add to inflation or pressure on the Reserve Bank to raise interest rates.

Scott Hogan-Smith, Partner, ECOVIS Clark Jacobs, Sydney, Australia

Also confirmed was the cessation of the low and middle income tax offset. This means from 1 July 2023, all qualifying individuals will no longer receive the $675 to $1,500 tax offset when lodging their tax return, saving the government $4.1 billion over 5 years.

On the spending side, the Government’s $14.6 billion cost of living package targeting energy bills, rental assistance and increased social security spending, plus spending more on health and aged care, including a substantial rise in pay for government-funded aged care workers. Also established is the Housing Australia Future Fund, which will be a $10 billion fund established to build new social and affordable housing, along with $2 billion of funding to support the production and export of green hydrogen.

Overall, the Government has tried to offend no-one, bank the savings of the revenue windfall received while trying not to add to inflation or pressure on the Reserve Bank to raise interest rates. It’s a fine line to walk but has also left some significant questions, especially about dealing with the budget’s structural deficit, without an answer.