Introduction:

The landscape of business taxation in the United Arab Emirates (UAE) has undergone a significant transformation with the introduction of the corporate tax law. This new legislation has prompted small and medium-sized enterprises (SMEs) to reassess their tax strategies and ensure compliance. In this article, we will explore the basics of the corporate tax law, shed light on the current state of SMEs in the UAE, discuss tax relief options available to them, delve into the process of initial assessment for compliance, touch upon transfer pricing regulations, and offer guidance on preparing for this new tax era.

Understanding the Corporate Tax Law:

The Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses, implemented in the UAE during the year 2022 to commence its application from June 2023, aims to be par with international standards. It introduces a standardized framework for corporate taxation, requiring eligible entities to pay tax at the rate of 9% on their table profits exceeding AED 375,000. The law does not cover individual income unless it is derived from business activities. Qualifying free zone entities can enjoy 0% tax rate on the qualifying income subject to conditions. This shift has prompted SMEs to re-evaluate their financial structures, business activities, taxation processes, and overall compliance.

The Landscape of SMEs in the UAE:

SMEs form the backbone of the UAE’s economy, contributing significantly to employment and economic growth. This sector’s adaptation to the corporate tax law is crucial for the overall economic stability and sustainable growth of the UAE.

Revisiting Books and Accounting Records:

One of the first steps SMEs must take is to review their books and accounting records. It is vital use accounting software as it will provide many advantages including very small cost of subscription models. It is essential to ensure that these records are in line with accepted accounting standards in the UAE, particularly International Financial Reporting Standards (IFRS). By ensuring accurate and compliant accounting records, SMEs can demonstrate transparency and meet the requirements of the corporate tax law.

Identifying Related Parties (RPT) and Documenting RPT Transactions:

To comply with the corporate tax law, SMEs must identify any related parties as per Corporate Tax Law and document their transactions appropriately. For companies with an annual revenue exceeding AED 200 million per annum, more comprehensive transfer pricing requirements apply, including the preparation of a master file and local file. This ensures that transactions with related parties are conducted at arm’s length and prevents potential transfer pricing disputes.

Tax Relief for SMEs:

Recognizing the importance of SMEs, the UAE government has implemented various tax relief measures to support their growth and ease the transition into the new tax regime. The Ministerial Decision No. 73 of 2023 – Issued 3 April 2023, stated that the annual revenue less than AED 3,000,000 business for the taxable year, possible to claim SME relief for 3 years subject to certain conditions. SMEs can leverage this provision to minimize their tax burdens and ensure a smooth transition. However, it is important to note that during this relief period, tax losses cannot be carried forward.

Registration for Corporate Tax:

All SMEs  mandatory and  must prepare for the registration process. This involves submitting the necessary documentation, such as  trade licenses, financial information, owners and manages identification documents such as passport copies and emirates ID copies  to the tax authority with other documents. Proactive registration ensures compliance with the laws and regulations. 

Seeking Consultant Advice:

Navigating the corporate tax law can be complex, especially for SMEs without internal resources dedicated to tax management. In such cases, seeking advice from tax consultants can be invaluable. Tax experts can provide guidance on compliance, help optimize tax strategies, and ensure that SMEs fully leverage the available relief measures.

Conclusion:

As the UAE Corporate Tax Law, SMEs must adapt to the changing tax landscape. By understanding the law, leveraging available tax relief measures, conducting compliance assessments, adhering to transfer pricing regulations, and seeking external tax consultancy if needed, SMEs can navigate this transition successfully. Proactive steps and a strategic approach will ensure compliance and also position SMEs for long-term success in this new era of taxation in the UAE.

Disclaimer

The information provided in this article is for general informational purposes only and should not be considered as legal or tax advice. While we strive to provide accurate and up-to-date information, laws and regulations may change, and the applicability of the content may vary based on individual circumstances. Therefore, it is recommended that readers seek professional advice from approved tax agents to assess their specific situations and ensure compliance with the corporate tax law in the UAE. The Crevaty and authors of this article disclaim any liability for any loss or damage incurred by individuals or organizations acting or refraining from acting based on the information provided in this article.