The advent of Corporate Tax in UAE, effective from 1 January 2024, brings forth a host of considerations for businesses preparing for implementation. Successfully navigating this transition involves a comprehensive understanding of the CT implications across legal, financial, and operational facets. Additionally, strategic planning encompassing people, processes, and systems is essential for compliance.

As we approach the deadline, this guide underscores key areas that businesses should prioritize to ensure a seamless transition into the era of corporate tax in UAE.

1. Consider Free Zone Footprint

Businesses operating within Free Zones (FZs) have the potential to benefit from a 0% CT rate. However, qualifying as a Qualifying Free Zone Person (QFZP) involves complex conditions that should not be assumed. Prioritize the following actions:

– Analyze the pros and cons of qualifying versus remaining in the standard 9% CT regime, including practical compliance requirements.

– Evaluate and plan necessary updates to transactions, pricing, intercompany agreements, documentation, etc., to meet all QFZP conditions.

– Review and strategize relevant operational substance to align with this critical condition of the regime.

2. Review Group Structure

The structure of a Group, encompassing holding, financing, investment, and operations, significantly influences its tax profile and elective possibilities. Key actions include:

– Review legal entity structure for potential CT inefficiencies or missed opportunities.

– Examine funding structure for potential risks or opportunities, such as limits on interest deductions or non-deductible capital.

– Identify and execute updates as required, including the rationalization of unnecessary entities or structures.

3. Review Financial Profile

The financial profile of businesses will play a pivotal role in determining their UAE CT profile. Critical actions include:

– Review accounting policies impacting key tax areas, such as items in Other Comprehensive Income, provisioning, depreciation, revaluation, and amortization.

– Scrutinize major expense categories to ensure compliance with tax deduction requirements, especially those regulated by tax legislation.

– Consider whether deferred tax provisions need to be made in the financial statements for FY2023.

4. Plan Transfer Pricing Profile

Compliance with transfer pricing (TP) rules is a central requirement for the CT regime. This necessitates not only impacting the effective tax rate but also ensuring sustainable and defensible income allocation within the Group. Priority actions include:

– Review the TP model to align it with the operating model.

– Ensure transactional design aligns with value creation within the group based on key functions, assets, and risks.

– Design TP policies in line with the arm’s length principle for implementation throughout the financial year 2024.

5.Review Foreign Entity Profile

Entities outside the UAE may still be subject to CT based on their presence in the country. Activities such as management, employees, dependent agents, and projects can result in tax liabilities. Key actions:

– Identify foreign company Directors or senior management exercising effective management from the UAE.

– Assess key commercial activities of foreign companies carried out in the UAE by employees or related parties.

– Make necessary updates to board composition, authority delegation, governance procedures, and operating models.

6. Consider Claims & Elections

Leverage the provisions in the CT legislation for elections and claims that optimize the tax burden. Priority actions include:

– Use transitional rules to mitigate taxation on pre-CT gains or capital asset appreciation.

– Ensure all requirements are met for CT grouping, sharing of tax losses, and other available reliefs.

7. Review Operational Readiness

Effective management of new CT obligations demands efficient finance and tax operations, processes, and IT systems. Priority actions include:

– Ensure the capability to generate separate Trial Balances for each entity, as required by the CT Law.

– Review the Chart of Accounts for tax sensitization, tracking tax-exempt incomes, qualifying vs non-qualifying incomes, non-deductible expenses, and TP adjustments.

– Formulate a governance approach for UAE CT, influencing necessary adaptations or changes to IT Systems and the Tax Department.

– Clarify and formalize responsibilities between Tax and other teams, ensuring awareness across different business areas.

– Conduct internal awareness sessions and training for non-tax functions, fostering a cohesive understanding of upcoming changes.

In conclusion, this guide serves as a strategic roadmap for businesses navigating the implications of Corporate Tax in UAE from 1 January 2024. While challenges may arise, proactive planning and compliance efforts will position businesses for success in this new tax landscape.