Tax rules in UAE: The Federal Decree regarding the taxation of corporations and businesses in the United Arab Emirates (UAE) was recently released. The Federal Decree establishes guidelines for calculating taxable income, defines a taxable person, specifies when a Qualifying Free Zone (QFZ) Person is subject to taxes, among many other things. The amended regulations will take effect on June 1, 2023.
Dr. Suresh Surana, the founder of RSM India, outlined the main things that Indians who are working or living in Dubai or who intend to move there should be aware of in light of the new regulations in an email correspondence with FE PF Desk. Revised passages:
Salaried individuals are exempt from the new tax laws
The new tax laws will only be applicable to individuals who earn money from businesses. The new tax laws will not apply to those who receive salary income in the United Arab Emirates. Thus, you won’t be impacted by the new tax laws if you currently work in Dubai or plan to start one.
In Dubai/UAE, there is a 375,000 AED exemption on business income
The new law provides a threshold of AED 375,000 (approximately Rs 84 lakh) before taxes are applied. Small businesses may also receive exemptions in due course (to be notified). There are still a lot of nuances in the new regulations to be worked out.
QFZ qualifying income will be subject to new corporate tax regulations
A sizable portion of the business in the United Arab Emirates operates in a qualifying free zone, where only qualifying income is liable to corporate tax (CT). Indians who intend to relocate to the United Arab Emirates should thus keep a close eye on the developments to ascertain the status of any exemptions related to their intended line of business.
Which Indian business will be regarded as a UAE resident
If an Indian company is successfully run and controlled out of the United Arab Emirates, it could be regarded as a resident of the country. Consequently, this needs to be carefully considered because failing to do so could result in double taxation. It should be noted that, in contrast to India, the income of an unincorporated partnership in the United Arab Emirates would be subject to partner taxation; therefore, it is important to thoroughly examine the taxation of these partners in the UAE.
What is the new UAE Corporate Tax (CT) regime’s tax rate
Under the UAE Corporate Tax (CT) regime, taxable income over AED 375,000 is subject to 9% corporate tax beginning on or after June 1, 2023, for the fiscal year.
Corporate tax is levied on the Taxable Income of a Resident Person, a juridical entity, whether the income is earned within the United Arab Emirates or outside it, depending on the details.
When a natural person who is a resident of the United Arab Emirates (UAE) receives income from sources inside or outside the country that are related to their business or business activity in the state, it is considered their taxable income, unless otherwise noted.
Taxes will only be applied to UAE citizens who conduct business
It appears that the new tax laws will only apply to natural persons, or residents of the United Arab Emirates who are involved in business. In other words, a resident individual conducting business in the UAE would be subject to CT even though income, dividends, etc., are exempt in the hands of an individual.
If the person meets the requirements to be considered a non-resident of the UAE, they may be subject to taxation on income originating from the UAE (such as sales of goods, services rendered, interest, income from real estate, shares sold, etc.).
Businesses operating in qualifying free zones are exempt from the new tax regulation (QFZP). To learn more about the Qualifying Exempt Income, one must wait. Businesses should set up appropriate transfer pricing policies and annual documentation as a result of the law’s transfer pricing provisions, which apply to both domestic and cross-border related party transactions.
The law stipulates that small businesses may elect to receive relief from CT based on a revenue threshold. But a threshold and associated conditions have not yet been given.
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