Is your business corporate tax ready? : Frequently asked questions by clients

As we advance in our series on corporate tax readiness, addressing the frequently asked questions (FAQs) regarding corporate tax and transfer pricing is essential. Over the past few months, we have observed a surge in misconceptions and uncertainties circulating within the business community. These common queries highlight a broader need for clarity and understanding as businesses try to understand the complexities of tax regulations and transfer pricing strategies. By tackling these questions, we aim to dispel confusion and provide practical insights to help businesses achieve compliance and optimise their tax positions effectively.

Yes, you will have to be mindful of the tax nomad provisions in the Indian Income-tax Act since your Indian income is more than Rs1.5 million.

Yes, corporate tax registration is compulsory even if the company does not have any turnover during the year unless the company is officially liquidated, license is surrendered, and company is de-registered on the portal. Failure to register or even de-register once liquidated attracts penal implications.

Yes, turnover of all the sole proprietorships will be clubbed to test the threshold of Dh1 Mn. Since the turnover exceeds the thresholds when clubbed, you are subject to corporate tax and you need to register for corporate tax.

Since your entity was incorporated in June 2023, your first tax period of 7 months would be 10 June 2023 till 31 December 2023, and consequently, first return will be due in 9 months from 31 December 2023 i.e. on 30 September 2024.

Yes, if you miss the due date for corporate tax registration, a penalty of Dh10,000 will be imposed on the entities. Entities that have already missed the deadline are currently receiving these penalties.

Yes, directors and officers of the company are squarely covered under the definition of connected persons and any payments or benefits provided by the taxable person to connected persons must comply with the arm’s length principle.

All businesses are required to maintain records of their transactions with related parties and connected persons, and certain businesses must submit this information along with their tax return. Additionally, if the Dh200 million revenue threshold is exceeded, the entity will also be required to maintain a local file and master file.

Government fees and charges incurred wholly and exclusively in the ordinary course of business are deductible for corporate tax (CT) purposes. However, any fines or penalties paid for a breach of law are not deductible. Accordingly, although service fee would be deductible, fine would be not. To specifically note, any fine paid for breach of contract would be deductible.

As per the law, expenses incurred on travel for shareholders are classified as entertainment expenses. Therefore, only 50 per cent of the expense will be deductible.

A non-resident person or entity is subject to UAE Corporate Tax (CT) only if they have a permanent establishment in the UAE or earn income sourced from the UAE. Income is generally considered to be sourced from the UAE if it is derived from a UAE resident, a UAE permanent establishment, or activities performed, assets located, capital invested, or rights used in the UAE.

Since your entity does not have a permanent establishment or physical presence in the UAE, and there is only state-sourced income, you are not required to file tax returns in the UAE. Instead, withholding taxes, which are currently 0 per cent, would apply.

Yes, a foreign juridical person may be considered a UAE resident for Corporate Tax (CT) purposes and subject to UAE CT on its income sourced from both the UAE and abroad if it is effectively managed and controlled in the UAE, meaning it has its place of effective management in the UAE. This analysis will depend on case-to-case basis.

While we have addressed many of the general queries circulating in the market, consulting an expert for any specific questions is highly recommended. As the UAE enters this new era of tax regulation, seeking guidance from a consultant can provide valuable insights and ensure compliance with the latest requirements.

The writer is Partner, MICS