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Corporate tax will enhance transparency in the UAE

Businesses will no longer be able to inflate their profit, and will have to justify their deductible expenses

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A company’s net profit will be subject to nine percent tax for the financial year starting on or after June 1, 2023

The introduction of corporation tax in the UAE will lead to more transparent business practices and should put an end to the phenomenon of income inflation.

It will also improve the UAE’s standing as an international hub for business and investment.

The UAE’s Ministry of Finance announced plans for a federal corporate tax regime on January 31. Under the ruling, a company’s net profit will be subject to nine percent tax for the financial year starting on or after June 1 2023.

The UAE is a key business and investment hub in the region and the authorities are taking significant steps to attract even more investors and businesses to the country.

As such, it is offering a business-friendly corporate tax regime with a low rate of nine percent. 

What’s more, in an effort to support SMEs and start-ups, profit up to AED 375,000 ($103,000) will not be taxed.

The introduction of corporate tax is intended to bring the UAE in line with international tax standards transparency. 

However, businesses in the UAE now have to consider the effect of the tax on their internal financial and accounting practices and take the necessary measures to comply with the new requirements.

All companies are now expected to appoint accountants, update their accounting registers and keep good track of their transactions and activities.

Once the corporate tax comes into force, businesses will have to be clear and transparent with the authorities about their expenses and income.

The information and figures shared with the UAE authorities must be at all times supported, accurate and correct. Otherwise, businesses will likely be subject to tax fraud charges.

This means businesses will no longer be able to inflate their profit as this will expose them to a higher corporate tax bill. They will also have to justify and demonstrate their deductible expenses. 

According to the Federal Law-Decree No. 32/2021 on Commercial Companies, businesses are required to keep accounting records showing their transactions for a period of at least five years from the end of the financial year in order to reveal their financial position when needed.

The UAE authorities will review and audit these records for taxation purposes. 

We believe the corporate tax will have a positive impact on the UAE economy and will certainly be beneficial for its residents and businesses.

Without a doubt, the Emirates will remain one of the most attractive destinations for investment in the region. 

Nadia El Tannir is an associate within the insurance practice at BSA Ahmad Bin Hezeem & Associates, Dubai