CORPORATE TAX IN Dubai | TAXABLE INCOME

 


Corporate Tax in Dubai is imposed on the taxable income of a taxable person during a tax period. We have seen various taxable persons coming under the purview of Corporate Tax. In this section, we will discuss taxable income and what are the adjustments to be taken into account in order to arrive at the taxable income.

Taxable Income

The Corporate Tax regime proposes to use the accounting net profit (or loss) as stated in the financial statements of a business as the starting point for determining their taxable income. Financial statements should be prepared in accordance with the accounting standards acceptable in the UAE.

A majority of the companies in UAE are following IFRS for the preparation of their financial statements and it is mandatory to comply with IFRS for banking institutions and certain publicly listed companies. However, as it stands any other acceptable accounting standards would be allowed to follow, depending on the type and status of the company.

The financial year used in the financial statements shall be the relevant tax period for the purpose of Corporate Tax.

The taxable person will have to make certain adjustments to determine their Taxable Income for the relevant Tax Period on arriving at the Accounting Profit. The major adjustments include unrealized gains and losses, exempt incomes like dividends, non-deductible expenses, tax loss reliefs, transfers between qualifying groups and business restructuring reliefs, any incentives or special reliefs for qualifying business activity, adjustments for transactions with related parties and connected persons, and any other deductions as may be specified in a Cabinet Decision.

What are Exempted Incomes

Decree-Law exempts certain types of income from Corporate Tax. This means that a taxable person will need to disregard those incomes while calculating the taxable income. However, taxable persons who earn exempt income will remain subject to Corporate Tax on their taxable income.

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The main purpose of certain income being exempt from Corporate Tax is to avoid double taxation on certain types of income. The below are the exempt incomes under Article 22 of the decree law.

· Dividend from a UAE Entity

· Dividend from a foreign entity (Participation Exemption)

· Capital gains and other income (Participation Exemption)

· Income of foreign Permanent Establishment (A Fixed Place of Business)

· Income of a Non-Resident from operating or leasing of aircraft/ships in international transportation

**Participation exemption is an exemption for shareholders in a company on dividends received, and potential capital gains arising on the sale of shares. The primary condition is that a shareholder should hold 5% or greater ownership in the company to have a Participation Interest.

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· Expenditure incurred for earning exempt income

· 50% of Entertainment expenses

· Net interest expenditure up to 30% of EBITDA

· Donations/gifts made to a Non-Qualifying Public Benefit Entity

· Fines & Penalties (other than compensation for damages/breach of contract)

· Dividends, profit distributions, or benefits paid to an owner of the Taxable Person

· Withdrawals by Taxable Natural Persons or a partner in an Unincorporated partnership

· Corporate Tax, Recoverable VAT, Foreign Taxes, etc.

Transfers within a Qualifying Group and Business Restructuring Relief

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Two taxable persons (other than a Qualifying Free Zone Person) can be considered as a Qualifying Group if they are resident or have a permanent establishment in UAE if non-resident and either a taxable person holds 75% of ownership in other taxable person or a third party holds 75% of the ownership of both taxable persons.

No gain or loss needs to be taken into account in determining the Taxable Income in relation to the transfer of one or more assets or liabilities between two Taxable Persons that are members of the same Qualifying Group.

Similarly, any gain or loss arising out of any of the following business restructuring shall be disregarded in determining Taxable Income.

a. A Taxable Person transfers its entire Business or an independent part of its Business to another Person who is a Taxable Person or will become a Taxable Person as a result of the transfer in exchange for shares or other ownership interests of the Taxable Person that is the transferee.

b. One or more Taxable Persons transfer their entire Business to another Person who is a Taxable Person or will become a Taxable Person as a result of the transfer in exchange for shares or other ownership interests of the Taxable Person that is the transferee, and the Taxable Person or Taxable Persons that are the transferor cease to exist as a result of the transfer. Read More 

Corporate Tax Introduction

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Location: Dubai - United Arab Emirates

Comments

  1. RanjaniSeptember 7, 2024 at 2:21 AM

    Great overview of Corporate Tax in Dubai! It’s essential for businesses to understand how taxable income is determined and the adjustments required to comply with the tax regime. The clarity on exempt incomes and adjustments is particularly valuable for ensuring accurate tax reporting.

    For those navigating the complexities of corporate tax, Spectrum Accounts offers expert services in Business Setup Companies in Dubai and Company Formation in Dubai. Our team can assist you with understanding how Corporate Tax impacts your business and help streamline your tax compliance processes. Reach out to us for more personalized guidance!

    Spectrum Services:
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