Introduction
Filing a corporate tax return in the UAE is a critical process for businesses to comply with the federal tax framework under Federal Decree-Law No. 47 of 2022. Understanding the tax return process, including who must file, what elections can be made, and how income is calculated, is crucial for businesses operating in the UAE. This article simplifies the essentials.
Submission of a Tax Return and Payment of Corporate Tax
All taxable persons must submit their tax returns and pay any Corporate Tax within 9 months from the end of the tax period. This process is completed through the EmaraTax platform, a streamlined system designed for efficiency and accuracy.
Who Can File a Tax Return?
A Tax Return can be submitted by:
- Taxable Person: Can file directly or through a Legal Representative or through a Tax Agent.
- Unincorporated Partnerships: The appointed responsible partner files on behalf of the partnership.
- Tax Groups: The Parent Company files the return on behalf of the group.
- Exempt Persons: Although generally not required to file a Tax Return, certain Exempt Persons (e.g., government entities or public benefit entities) may need to file if they conduct taxable business activities. In such cases, they are treated as Resident Persons for the purpose of reporting those activities.
Structure of the Tax Return
A Tax Return consists of several parts, allowing a Taxable Person to report their Taxable Income, adjustments, exemptions, and reliefs. The main components are:
- Part A: Taxable Person Information
- Part B: Elections
- Part C: Accounting Schedule
- Part D: Accounting Adjustments and Exempt Income
- Part E: Reliefs
- Part F: Other Adjustments
- Part G: Tax Liability and Tax Credits
- Part H: Review and Declaration
- Part I: Schedules
Categories of Taxable Person
The UAE Corporate Tax Return system, accessed via EmaraTax, is designed to cater to various categories of Taxable Persons. By using a mix of pre-populated data and user-input fields, the system ensures that each Taxable Person completes only the sections relevant to their circumstances.
The Tax Return caters for the following categories of Taxable Persons:
- Resident and Non-Resident Juridical Persons
- Resident and Non-Resident Natural Persons
- Qualifying Free Zone Persons: Entities located in Free Zones that meet specific conditions to be qualifying free zone persons.
Note: Free Zone Persons that do not meet the conditions (or opt out of this status) will file as either a Resident or Non-Resident Juridical Person, as the case may be.
- Approved Tax Groups include a Parent Company and its Subsidiaries.
- Unincorporated Partnership
- Exempt Persons
Understanding Elections in UAE Corporate Tax Returns
Elections in the UAE Corporate Tax framework provide businesses with strategic choices to customize their tax filings, optimize liabilities, and ensure compliance with specific conditions.
Here’s a breakdown of the key elections, their purpose, and their implications:
Realisation Basis
- Purpose: Taxable Persons preparing financial statements on an Accrual Basis of Accounting can opt to disregard unrealised gains and losses recorded in their financial statements for Corporate Tax purposes.
Eligibility:
- This election must be made in the first Tax Period.
- It is irrevocable except in exceptional cases with FTA approval.
- Impact: Applies to all future Tax Periods, ensuring consistency in tax treatment for unrealised gains and losses.
Transitional Rules
- Purpose: Adjust the Taxable Income to exclude gains (and in some cases, losses) related to the period before the first Tax Period, (if the dispose of such assets or liabilities in future) for specific assets and liabilities, such as:
- Qualifying Financial Assets or Liabilities.
- Qualifying Immovable Property.
- Qualifying Intangible Assets.
Eligibility:
- This election is only available in the first Tax Period.
- Not applicable if the Taxable Person has elected the Cash Basis of Accounting.
- The election is irrevocable unless FTA approval is granted in exceptional cases.
- Impact: Ensures historical gains and losses are excluded from taxable income calculations upon asset disposal.
Small Business Relief
- Purpose: Simplifies compliance for Resident Persons with revenue of AED 3 million or less during the relevant and previous Tax Periods.
Eligibility:
- Not available to members of Multinational Enterprise (MNE) Groups or Qualifying Free Zone Persons.
- Election is made annually.
Impact:
- Exempts the business from calculating Taxable Income and paying Corporate Tax for the elected period.
- Reduces the number of fields required in the Tax Return, easing administrative burden.
Transfers Within a Qualifying Group
Purpose: Enables tax-neutral transfers of assets and liabilities held on capital account between members of a Qualifying Group.
Eligibility:
- A Qualifying Group must meet the conditions to be treated as members of the same Qualifying Group.
- The election is irrevocable, applying to all transfers within the group for the relevant and future Tax Periods, unless FTA approval is obtained.
Impact: Eliminates tax liabilities on transfers between group entities, facilitating internal restructuring and operational efficiency.
Business Restructuring Relief
Purpose: Provides tax relief for transactions conducted as part of a business reorganization or restructuring.
Eligibility :
- The Transferor must make an election for each restructuring transaction.
- Does not automatically apply to future restructuring activities.
Impact: Eliminates Corporate Tax impact on specific transactions, provided all conditions for the relief are met
Foreign Permanent Establishment (PE) Exemption
Purpose: Allows a Resident Person to exclude the income and expenses of its Foreign Permanent Establishments (e.g., overseas branches) from the calculation of Taxable Income.
Eligibility:
- The election must be made annually.
- The Foreign PE must be subject to Corporate Tax or a similar foreign tax at a rate of at least 9%.
Impact: Avoids double taxation and simplifies compliance for businesses with international operations.
Determining Taxable Income
The starting point for calculating Taxable Income is the Accounting Income, derived from a business’s financial statements. This Accounting Income must be adjusted to align with UAE Corporate Tax regulations, reflecting taxable and exempt items.
To assist taxpayers in determining Taxable Income, the Corporate Tax Return includes a series of fields requiring detailed answers. These responses dictate which additional schedules the taxpayer must complete, ensuring a comprehensive and compliant filing.
For Qualifying Free Zone Persons, the tax return process requires them to:
- Identify Qualifying Income, which is taxed at 0%.
- Declare Non-Qualifying Income, which is subject to the standard 9% Corporate Tax rate.
This approach ensures transparency and accuracy in filing while distinguishing income categories subject to differing tax treatments.
Tax Period
The Tax Period for a Taxable Person varies depending on their category:
- For Natural Persons:
The Tax Period aligns with the Gregorian calendar year (January 1 to December 31), starting with the year 2024. - For Other Taxable Persons:
The Tax Period is based on their Financial Year, which may differ from the Gregorian calendar year but usually spans 12 months. In some cases, a Tax Period may be longer or shorter than 12 months due to specific circumstances.
- For Natural Persons:
Conclusion
Understanding the basics of UAE Corporate Tax Return Filing is vital for businesses to ensure compliance and avoid penalties. By familiarizing themselves with the structure of the tax return, submission timelines, and essential categories, taxpayers can approach their filings with confidence. While this blog covers the foundational aspects, there is much more to explore within the Corporate Tax framework for return fling.
Upcoming discussions will address advanced schedules, reliefs, best practices for calculating and managing taxable income, handling transitional rules, and navigating group taxation. These detailed explorations will equip businesses with the knowledge to tackle more sophisticated tax scenarios and make informed decisions.
For assistance with your tax filing, trust RVG Chartered Accountants to guide you through the process.
Contact us today for expert advice and support!
