UAE corporate tax: Free zone businesses wait on ‘qualifying income’
Free zone firms with mainland operations need learning on loss offsetting and more
Dubai: Free zone-based businesses in the UAE have some serious thinking to do – whether they should sign up to pay 9 per cent corporate tax (CT) or not. Because if they do sign up for the 9 per cent annual tax payout, then these businesses will have greater flexibility on how they handle losses sustained by their companies operating on the mainland.
“If a free zone enterprise elects to pay corporate tax at 9 per cent and does not claim tax exemption, they can claim tax losses of their mainland subsidiary by forming a group or by way of transfer of losses, subject to conditions,” said Manoj Agarwal, founding Partner and CEO at AJMS Tax.
Under the UAE CT rules, a free zone-based business is taxed at 0 per cent. But vast numbers of those businesses with their regional HQs in UAE free zones also have extensive interests on the mainland. Free zone businesses thus have to decide fast whether they should sign up to be taxed at 9 per cent – and claim some of the benefits from doing so – especially when it comes to handling losses sustained in a financial year.
As per Article 37 of UAE CT Law, losses prior to the effective date of the law on a particular entity will not be allowed to be adjusted. As an example, a business with the tax year starting from January 2024 will not be able to offset losses prior to December 31, 2023. Further, losses are allowed to be offset only up to 75% of taxable income of that relevant tax period in which these losses are being offset.
– Manoj Agarwal of AJMS Tax
Here’s what the rule says:
> In case the ‘free zone person’ satisfies required conditions and becomes a ‘qualifying free zone person’ (QFZP), then the income derived by QFZP is termed as ‘qualifying income’ and this is taxed at 0 per cent.
> If the 0 per cent tax rate is applied, then a free zone enterprise and a mainland company cannot transfer tax losses.
Forming a group
There is still a way that a free zone enterprise with a mainland company can claim on tax losses. If the free zone entity elects to pay CT at 9 per cent and does not claim tax exemption, they can claim tax losses of their mainland subsidiary. This is done through forming a ‘group’ or by way of transfer of losses, subject to conditions.
“Typically, losses are allowed to carry forward for a certain period or are allowed to adjust with certain conditions, whereas UAE CT seems to be more liberal than other matured tax jurisdictions,” said Agarwal.
“Here losses are allowed to adjust up to 75 per cent of taxable income with certain conditions, such as holding equity/continuing same business activities. Globally, generally these conditions are not there, as the business entities are treated as separate legal entities for tax purpose.”
“Plus, changing the business activities or continuing the same shareholding may create additional burden of probe on the businesses.”
Awaiting more clarity on CT rules
“When it comes to tax treatment applicable to free zone entities, the CT law makes multiple references to future UAE Cabinet decisions,” said Nasheeda, founder of Nishe Accounting & Consulting. “This renders it difficult at present for free zone businesses to determine their tax status and responsibilities.
“In my view, the need for clarity on this topic is quite understandable as the UAE CT rules have to conform to the tax benefits promised by free zones, which form an important part of the UAE economy. And maintain fairness between mainland and free zone businesses while keeping the tax rules simple and loophole-free.
“All of this evidently requires some deft managing.”
Where there is a 75% or more common ownership, the law allows offsetting taxable profit in one entity with tax loss in another entity. If the common ownership is 95 per cent or more with a parent-subsidiary structure, the law allows tax grouping of the entities such that only one combined tax return needs be filed for all the entities in the tax group.”
Signing up with FTA
Corporate tax-linked registrations have opened for UAE’s larger business groups, listed entities and those that have their financial year starting June. For now, only businesses that have been invited to sign up need to do so, but the net will widen soon enough as the timeline draws near to June 1, 2023, when the UAE corporate tax regime goes live.
“We applaud the Federal Tax Authority (FTA) for the successful launch of pre-registration on its EmaraTax platform,” said Hussain Sajwani, Chairman of Dubai-headquartered Damac. “With this measure, digital tax services in the UAE will be easily accessible and corporations in the country will be able to efficiently report their corporate taxes.”
The FTA has been conducting a series of workshops and seminars to filter its message through to businesses, and making it as less onerous as possible to register. What is keenly awaited is the FTA opening up the CT registration processes for more businesses.
As tax consultants and businesses owners say, signing up for VAT can help understand the process – but no one should make the mistake of thinking the requirements for both are the same.
SMEs, take note
Small businesses that rack up an annual income of Dh375,000 and lower will be charged 0 per cent corporate tax. But UAE SMEs can also tap other benefits from the new tax regime.
“There is the concept of small business relief. Using this, small businesses that have a revenue below a certain threshold (which is yet to be notified) may be subject to simplified compliance obligations,” said Dr. Nabeel Ahmed, Partner at DVS Management Consultancy. “And (these will) be treated as having no taxable income during the relevant tax period.
To claim small business relief, an ‘election’ must be made to the FTA. Simply put, SMEs must choose to avail this relief.
– Dr. Nabeel Ahmed, Partner at DVS Management Consultancy.
“As to who can claim this small business relief, any UAE resident juridical person or individual with revenues below the threshold defined by the minister and who meets any other conditions that may be set, can claim small business relief.”
The most keenly awaited updates on corporate tax
There are Cabinet decisions and executive regulations that businesses are awaiting with anticipation. Here are some of the topics that will be defined by further executive actions, as told by Dr. Nabeel Ahmed.
What will be the threshold for small business relief?
For companies established in free Zznes, the publication of the Cabinet decision detailing the concept of what amounts as ‘qualifying income’ would be crucial to clearly understand how the new CT will impact UAE business activities.
What categories of income derived by non-resident persons will be subject to withholding tax?
Any other expenditure that would amount to entertainment expenditure and be allowed deduction to the taxable income. And any other non-deductible expenditure other than the ones mentioned.
What is the test to determine the connection between the ‘state’ and non-resident person to determine taxable income?
UAE corporate tax and free zones
How the UAE corporate tax will define a ‘qualifying free zone person’ has become a topic of intense discussion from the moment the concept was mooted, because free zones specifically mention the absence of tax as a key incentive offered to companies wanting to register with them.
“By far, the most anticipated update by businesses is the list of designated free zones for corporate tax,” said Nimish Goel, Partner at WTS Dhruva Consultants. “Then there is the list of qualifying income for free zone person that’s taxable at 0 per cent.
“Given the number of entities in UAE free zones, this number is critical.”
In case the free zone person satisfies the required conditions and becomes a ‘qualifying free zone person’, then the income derived is termed as ‘qualifying income’.
The qualifying income is taxed at 0 per cent.
If the 0 per cent tax rate is applied, then a free zone enterprise and a mainland company cannot transfer tax losses.
Clause 1 of Article 38 states as one of the conditions on transfer tax losses that ‘neither is an exempt person nor qualifying free zone person’. A tax group can only be formed if neither the parent nor subsidiary is an exempt person.
If a free zone enterprise elects to pay corporate tax at 9 per cent and does not claim tax exemption, they can claim tax losses of their mainland subsidiary by forming a group or through transfer of losses.
Source:https://gulfnews.com/special-reports/uae-corporate-tax-free-zone-businesses-wait-on-qualifying-income-1.93802442
UAE: Can Indian expats get PAN, Aadhaar cards while in the Emirates?
An expert explains the process in detail and what can and cannot be done online, and which procedures require NRI’s to travel to India
If you are an Indian living in the UAE, you may be wondering whether or not you can apply for a PAN Card from the Emirates, or if you can apply for a new Aadhaar card or update your old Aadhaar card while still living overseas.
Deepak Bansal, from AskPankaj Tax Advisors, UAE, explains the process in detail and what can and cannot be done online.
Can you apply for PAN Card from the UAE? What is the process for PAN card application?
Yes, foreign citizens and non-resident Indians (NRI) have the option to apply for an amendment, or a new Permanent Account Number (PAN), from outside India. The application can be made online at https://www.protean-tinpan.com
The applicant needs to fill in an online form (Form 49AA from the above website) with their personal details, including a valid phone number and email id along with proof of identity and address such as passport, OCI card or PIO card. For such documents, no further attestation of these documents is required.
However, if an applicant is submitting foreign citizenship card or tax identification number, it should be duly ‘apostilled’ or certified by Indian embassy or by an authorised officer of an Indian bank having a branch abroad.
The applicant has an option to mention their overseas address for the delivery of PAN Card by paying the additional cost of international postage/delivery.
If the applicant holds an Aadhaar card or an India-issued digital signature, the form can be submitted online in a paperless manner. Alternatively, the applicant has an option to send the signed form through post/courier to the tax authorities in India.
Can you apply for an Aadhaar card from the UAE?
NRI expats in Dubai can also begin the process to apply for Aadhaar card online, but they would have to travel to India for the appointment. The card will only be issued after this.
What is the process for applying for a new Aadhar card?
The Aadhaar card is similar to the Emirates ID used in the UAE. As the Aadhaar card contains biometric details, it needs to be applied for by physically visiting a government facility (Aadhaar centre) in India.
It is important to note that earlier only local residents (people who stay for at least 180 days in India) were eligible to apply for Aadhaar. However, since September 2019, NRIs are also allowed to apply for Aadhaar card upon their arrival in India. NRIs should note that they can pre-book an appointment at the Aadhar centre in advance even before travelling. Further, if their passport does not have a valid Indian address, NRIs will need to submit other prescribed documents.
To initiate the process to apply for Aadhaar cards online, one needs to set up the appointment for a convenient date using the official UIDAI website.
What does one do for Aadhaar amendment?
A person can update his/her address online. However, for any other details such as name, date of birth, mobile number, email etc, or the biometrics details, the Aadhaar holder will need to physically visit an Aadhaar centre.
Source:https://www.khaleejtimes.com/uae/uae-can-indian-expats-get-pan-aadhaar-cards-while-in-the-emirates
GCC could fast-track its sustainability goals with data driven ESG reporting
A systematic data-driven framework can help organizations in the GCC to reduce waste
Sustainability reporting can enable organizations in the middle east to reduce risk across their supply chains by improving their decision-making processes. Protiviti Member Firm for the Middle East Region has emphasized on the importance of data driven environmental, social, and governance (ESG) reporting to fast-track the region’s sustainability goals. The leading consulting firm in the region stated that a systematic data-driven framework will be equipped to help organizations in the GCC to reduce waste and also yield significant cost savings in the near future.
Furthermore, the two major global meetings, namely United Nations Climate Change Conference 2022 (COP27) in Egypt and COP28 in UAE, will place environment, social, and governance challenges high on the region’s agenda.
“Countries in the GCC currently have either implemented or are in the process of transitioning towards improved sustainability disclosure. Sustainability presents multi-dimensional and complex challenges, with varying levels of understanding across industries and organizations,” says Arindam De, Deputy CEO and Managing Director, Protiviti Member Firm for the Middle East Region.
“At Protiviti, we work closely with the industry stakeholders to effectively evaluate what ESG means for an organization, helping build, implement, execute, monitor, and report on ESG objectives that will evolve and grow with the organization. We help organizations in the GCC to understand the bigger picture, and to clearly identify where they can make a larger impact on society and the environment while maximizing performance”.
ESG reporting is garnering growing attention today, particularly among the decision makers within the public and private sectors seeking to understand and possibly comply with specific requirements in their country or their industry.
“However, when it comes to ESG reporting, there are several questions that need solid responses. Questions such as who is specifically required to issue these ESG reports or who is issuing them voluntarily and more importantly, what do organizations need in order to issue them in terms of data and operational processes are some of the prominent ones that need immediate attention,” says De.
A well-defined structure of sustainability reporting can enable organizations in GCC to measure and monitor performance against established economic, environmental, social, and governance goals. Furthermore, transparency leads to improved decision-making, more effective communication with external stakeholders, and enhanced ESG health of an organization.
“ESG reporting is not a marketing campaign but as important as the mandatory financial reporting with proper accountability. It has to be completely data-driven, only then can organizations evaluate, monitor, and achieve the progress made towards their sustainability goals. It is also important for the organisation’s internal stakeholders to comprehend the importance of ESG reporting and only then can an organization as a consolidated unit – move forward,” adds De.
“At a recent webinar conducted by Protiviti earlier this year, out of 300 plus global attendees, we observed that close to 44% of them have not started deploying a framework to capture data through IoT (Internet-of-Things), 37% of the respondents were not aware of an ESG report being published by their organization, only 36% have the primary responsibility of ESG reporting and assigned to an ESG Committee and 34% respondents stated that they are planning to increase budget in all areas of ESG. So, there is a lot of ground that organizations across the Middle East region and globally need to cover to reach closer to their sustainability goals,” explains De.
“Sustainability continues to evolve as companies recognize the value of supporting ESG issues to survive in the marketplace. Sustainability defines an organization, setting it apart from its competitors while impacting the whole organization in varying ways and intensities. However, while many companies are aware they must act, they find it difficult to strategically tackle the issue,” De says.
Source:https://gulfnews.com/business/corporate-news/gcc-could-fast-track-its-sustainability-goals-with-data-driven-esg-reporting-1.1661847047039
UAE trademarks law a key pillar to ensure safe IP environment
The new laws allow greater flexibility to accommodate unconventional trademark patterns and provide them with legal protection, in light of the advanced technologies used in building companies’ trademarks
The UAE has been taking significant efforts in promoting the system of intellectual property (IP) and copyrights, with trademarks as a key pillar, Abdulaziz Alnuaimi, assistant undersecretary of the Commercial Affairs Regulation Sector at the Ministry of Economy, said on Thursday.
He noted that the UAE has therefore issued a set of legislations and laws to support trademark owners to ensure their growth and prosperity within a secure and safe environment. The new laws, introduced in 2021 as part of the “Year of the 50th” celebrating the fiftieth anniversary of the foundation of UAE, and made effective as of 2 January 2022, are intended to keep pace with the developmental achievements of the UAE and reflect the country’s aspiration as an R&D and innovation hub.
The laws, which establish major rules for trademark owners within a barrier-free environment that promotes creativity and innovation, raised certain fines up to Dh1 million in order to put a stop to trademark infringement.
“These efforts emphasize the significant role of this sector in encouraging creativity and its contribution to building the country’s new economic model based on knowledge and innovation, and in line with the goals and principles of the 50 and the UAE Centennial 2071,” Alnuaimi said at a media briefing.
He said the new regulation reflects an exceptional integration of efforts between the ministry and its local and federal partners, as well as global entities concerned with the IP sector.
“The collaboration guarantees the country’s adherence to international best practices in this regard, thereby stimulating FDI flows and attracting international companies to relocate to the UAE by guaranteeing a highly conducive working environment. This, in turn, strengthens the UAE’s position as a favored destination for innovators and creators, thus promoting its leadership in global competitiveness indexes for IP protection,” Alnuaimi said.
He pointed out that the new laws allow greater flexibility to accommodate unconventional trademark patterns and provide them with legal protection, in light of the advanced technologies used in building companies’ trademarks.
“This shows how the UAE is keeping pace with international developments in the field, consolidating its position among the countries with advanced, innovative trademark protection.”
According to experts, fines have been increased to between Dh100,000 and Dh1 million for the following offences: forgery or counterfeiting; knowingly using a forged or counterfeit trademark; using in bad faith a trademark owned by another; possession of material for the imitation or counterfeit of a registered trademark; and importing or exporting of counterfeit products. A reduced fine of Dh50,000 — Dh200,000 applies to the sale or possession of counterfeit products and the use of an unregistered trademark in a manner to suggest that it has been registered. This is a stark contrast from the Repealed Trademark Law which set minimum fines at Dh5,000, according to experts.
“Article 39 of the amended copy rights law increases the potential fines for copyright infringement from a maximum of Dh50,000 to Dh100,000 (previous penalty was Dh10,000 – Dh50,000 under the Repealed Copyright Law). Article 40 also introduces new more severe penalties for (a) manufacturing or importing counterfeit works; (b) disrupting or impairing electronic data aiming at managing copyrights; and (c) downloading or storing computer programmes, applications or databases without a licence from the author or rightsholder. Such offences now carry a minimum imprisonment of 6 months and/or a fine of between Dh100,000 — Dh700,000 (previous penalty was minimum three months imprisonment and fine of Dh 50,000 — Dh 500,000 under the Repealed Copyright Law,” say experts.
Higher penalties apply to reoffenders, copyrights law experts pointed out. The increased penalty for downloading computer programmes without a licence is something that, in particular, enterprise software users should be aware of. Interpreted literally, businesses who exceed their licence permissions/metrics in software licence agreements are potentially committing a crime under the Copyright Law and could face significant fines or imprisonment (without prejudice to other contractual remedies that the software licensor may wish to pursue). Enterprise software licences can be complicated to negotiate and interpret and it is important that businesses procuring software licences understand their usage entitlements and obtain sufficient legal and technical advice, according to legal experts.