Owner of multiple ‘sole firms’ needs just one tax registration
The UAE’s Federal Tax Authority (FTA) clarified on Monday that an individual (natural person) owning multiple sole companies is required to obtain only one tax registration for all of them, and not for each one separately.
The FTA said in a statement that a sole establishment (sole proprietorship) is a legal form of business which is 100 per cent owned by a natural person, and it does not have a legal personality independent of its owner, as the sole business and its owner are considered to be the same person.
This announcement was issued in a new public clarification regarding the VAT registration of sole establishments, which recorded a 1.3 per cent surge to 304,948 at the end of January month-on-month, reflecting the robust activity of the sector, which recently attracted many investors from both inside the country and abroad.
The National Economic Register’s recent figures show that relevant authorities issued over 4,000 new licences for sole establishment around the country in January 2021.
According to statistics, sole proprietorship account for nearly 41 per cent of total commercial licences of 740,717 at the end of January.
Abu Dhabi, Dubai and Sharjah account for 78.6 per cent of the total sole establishments operating in the country.
The FTA clarification on tax registration seeks to educate people with the aspects of the tax rule which need simplified explanations, “enabling them to apply the tax principles accurately and efficiently,” the tax authority said.
The FTA clarified that the sole proprietorship rule does not apply to a One-Person Company LLC or other similar legal entities, which are seen as “distinct and separate legal persons” from their owners (unless the applicable legislation treats such entity and the natural person as the same person). For the avoidance of doubt, it should be noted that a legal person (e.g. a company) cannot own a sole establishment.
In certain cases, tax registrations by taxpayers are reviewed with regards to sole establishments and such persons will be informed of the corrective measures to be taken, if needed, the FTA explained.
The tax authority noted that the taxable supplies made by a natural person, in addition to his sole establishment(s), must be considered collectively in order to determine whether the person exceeded the mandatory VAT registration threshold of Dh375,000.
The FTA said the registrant must inform the FTA of any undeclared output tax by submitting a voluntary disclosure in accordance with Federal Law No. 7 of 2017 on Tax Procedures, for example where the registrant disregarded any of his sole establishments or taxable supplies made in his personal capacity for VAT purposes. “This includes instances where a person failed to register for VAT on the basis that the mandatory VAT registration threshold was not exceeded on a stand-alone basis by that natural person or his sole establishment(s).”
A natural person is also required to notify the FTA if it failed to register for VAT and take the necessary corrective action to account for any outstanding dues.
India Union Budget 2021: Key tax reforms
The government has left direct taxes unchanged, but took steps in direct tax incentives to ease compliance for taxpayers.
Senior citizens above 75 years of age with only pension and interest incomes have been exempted from filing tax returns, Finance Minister Nirmala Sitharaman announced on Monday.
While tabling the Union budget 2021-22 in Parliament, the minister said that the number of income tax return filers has increased to 6.48 crores now from 3.48 crores in 2014.
The government has left direct taxes unchanged, but took steps in direct tax incentives to ease compliance for taxpayers.
“We shall reduce the compliance burden on our senior citizens who are 75 years of age and above. For senior citizens who have pensions and interest income, I propose exemption from filing their income tax returns. The paying bank will deduct the necessary tax from their income,” she said.
Here are the other key tax proposals
* Exemption from filing income tax returns for senior citizens (75 years and above) who only have pension and interest income. The paying bank will deduct the necessary tax on their income.
* Reducing time limit for reopening of income tax assessment.
* Constitution of a dispute resolution committee for small tax payers
* Income tax appellate tribunal to be made faceless
* Increase in limit for tax audit for persons who carry out 95% of their transactions digitally
* Dividend payment to REIT/InvIT (real estate investment trusts and infrastructure investment trusts) to be exempted from TDS
* Pre-filling of returns will also cover capital gains from listed securities, dividend income, etc
* Eligibility for claiming tax holiday for start ups proposed to be extended by one more year
* Additional deduction of Rs1.5 lakh shall be available for loans taken up till March 31, 2022 for purchase of affordable house
How Audit Firms Can Help You to File ESR Notification & Report In Such a Short Notice?
The companies operating in the UAE (mainland, free zone & offshore) are once again facing a compulsion to meet the Economic Substance (ESR) filing requirements as the deadline is around the corner. The UAE-based companies that conduct the relevant activities need to demonstrate adequate economic substance and file the notifications and submit the reports before 31st December 2020.
Companies that have already filed the ESR notification must submit the notification again to the relevant regulatory authorities in sync with the Cabinet Resolution 57 of 2020 which updated several clauses in the previous law. Since the deadline is approaching fast, many companies are floundering to get prepared. Seeking expert assistance of reputed audit firms in Dubai, UAE is the most reliable route to ensure your business entity is complying with the ESR filing requirements. You also need to ensure that your company is aware of the following requirements to be on the right side of the law.
ESR Filing Deadlines
In the updated ESR scenario, businesses that fall within the scope of the regulation must execute the ESR filings through an online portal operated by the UAE Ministry of Finance. The companies with the financial year commencing on or after 1st January 2019 and ending on or before 30th June 2020 must consider the deadline as 31st December 2020. The deadline is the same for those companies with the financial year starting on or after 1st January 2019 and ending on or before 31st December 2019. Your trusted audit firms in Dubai have more clarity on the reporting period, and deadlines and they will ensure that your business abides with the obligations.
Insights on Updated Definitions
A significant area where you need to focus before sending the ESR notifications or returns is the change in the definitions of key terms. For example, a Licensee now means any corporate entity incorporated inside or outside the UAE or an unincorporated partnership in the UAE that conducts a Relevant Activity. Natural persons, sole proprietors, trusts and foundations that were earlier considered as Licensees under the ESR no longer meet the scope of ESR.
Updated Notification & Reporting Requirements
Companies that file the ESR notifications now need to furnish additional details such as the jurisdiction of the Parent Company, Ultimate Parent Company, and Ultimate Beneficial Owner (UBO) who claim to be tax resident. Apart from that, the licensees that are required to file the ESR Report must submit a copy of financial statements. Audit firm in Dubai provides services related to the UBO mainly assistance in maintaining the Real Beneficiary Register. Such assistance gives great leeway to the companies as they can easily submit the UBO details in the ESR reports.
Eases the ESR Filing Requirement for Companies
Article 8 of the Cabinet Resolution 57 of 2020 sheds light on the notification and reporting requirements that the entities must meet to comply with the ESR. It states that every Licensee is now required to file annual ESR notification to the relevant Regulatory Authority. Audit firms in Dubai will assist you in filling the notification with the following mandatory details :
1. Whether the business entity has carried out a relevant activity or not
2. Whether the company has generated any income from the relevant activity
The notification will be filed through the Ministry of Finance’s dedicated online portal. The notification will be processed between the regulatory authorities and the Federal Tax Authority (FTA), which is the National Assessing Authority for the ESR.
The FTA, in its capacity as a National Assessing Authority, will oversee compliance and control of the Updated ESR. FTA, among other things, will also assess if the Licensee has met the Economic Substance Test. It will also decide the necessary course of action to follow if your entity fails to meet the ESR test.
A Helping Hand to Avoid Penalties
Incurring penalties for ESR non-compliance is an undesirable scenario for the smooth functioning of your companies in the UAE. Availing the bespoke services of the UAE audit firms would save the businesses from the hefty penalties.
Here is the list of penalties as per the Cabinet Resolution 57 of 2020 :
1. Companies that fail to submit the annual notifications, or any other mandatory documents/ information will have to pay a penalty of AED 20,000
2. Filing inaccurate information on the notification or ESR Return attracts an administrative fine of AED 50,000.
3. Companies would face a penalty of AED 50,000 if they fail to file Economic Substance Returns or fail to meet the Economic Substance Test.
Penalties of this range could hurt the reputation of the companies apart from hitting them financially. Repeated violations would also lead to license cancellations which makes it necessary for the companies to file the ESR notifications on time.
FTA to issue tax residency and commercial activities certificates
The authority will begin receiving applications for the issuance of Tax Residency and Commercial Activities Certificates via its e-services portal as of November 14, 2020.
The FTA explained that there are two categories of tax certificates which are issued to companies and individuals. The first category is for the ‘Tax Residency Certificate’, a certificate issued by the FTA upon request to enable applicants to benefit from Double Tax Avoidance Agreements (DTAA) signed between UAE and other countries.
The second is the Commercial Activities Certificate which is a certificate issued by the FTA to enable applicants to refund VAT paid in advance outside the UAE, whether or not DTAAs are applicable.
The authority emphasized that the new service provides advantages and ease for the issuance of certificates to those registered with the tax system, as all their data is available in the FTA database so they can apply for Tax Certificates through direct and quick digital procedures.
Khalid Ali Al Bustani, director-general of the FTA, confirmed that this step is part of an ongoing cooperation between the FTA and the Ministry of Finance as a strategic partner to the authority, noting that a joint working group from both entities have made the necessary arrangements to ensure a smooth transfer for the digital issuance of Tax Residency and Commercial Activities Certificates from the ministry to the authority.
“Both Tax Residency and Commercial Activities Certifi-cates allow investors in the UAE, including companies and individuals, to benefit from double taxation avoidance agreements to which the State is a party, with the aim of preventing duplication, in addition to recovering VAT imposed on Emirati businesses in various countries in the event they were registered with the Authority,” Khalid Al Bustani said.
The authority clarified that eligible individuals can easily issue Tax Residency and Commercial Activities Certificates through a simple registration process via the Federal Tax Authority’s official website. The process is completed by submitting the required supporting documents and paying the fees specified in the UAE Cabinet Decision No. 65 for 2020. These specified fees were set as a requirement to apply for the Tax Residency Certificate, as an application is reviewed for any normal or legal person that is not registered with the authority and providing a print copy of the digital Tax Residence Certificate.
The Cabinet Decision also set the fees required to apply for a Commercial Activi-ties Certificate for businesses registered with the Authority, and to review the ap-plication and issue a digital Commercial Activities Certificate and to provide a print copy for the certificate that was issued.