Tax exemption for new companies in UAE requires the fulfillment of a set of controls and conditions in order to benefit from the tax facilities approved by the law. Among these facilities is the consideration that the company did not achieve taxable income during the tax period in which the company fulfilled these conditions.
By approving these facilities – small business facilities – UAE aims to support new companies and other small businesses in order to reduce the burden of corporate tax and its compliance costs.
Which Companies can Claim Tax Exemption?
Companies that can claim tax exemption are:
New companies Residing in the Country: These are companies that have been established, created, or recognized in the country in accordance with the legislation followed in the country.
Companies Managed in the Country:
These are companies that were incorporated, created or recognized under the legislation of a foreign territory or another country and these companies are effectively managed and controlled in the country.
Conditions for Tax Exemption for New Companies
The Ministerial Resolution of 2023 regarding small business facilities specified the requirements for exempting new companies from corporate tax according to the following:
- The limit of its revenues for the relevant tax period shall be (3,000,000) three million dirhams for each tax period.
- The new resident companies must not be a member of a group of multinational companies whose work is based on preparing reports on a country-by-country basis in accordance with the legislation followed in the country regarding this. It must not be a qualifying company based in the free zone.
Scope of Tax Exemption for New Companies
- Companies must commit to paying the tax payable for the relevant tax periods only.
- These companies must remain liable to corporation tax for each individual tax period, and this includes the obligation to register for corporation tax, file tax returns, and retain all relevant papers and documents to support their corporate tax returns.
However, when companies apply small business facilities, some of the provisions for calculating taxable income for the tax period in which they chose the facilities will not apply to them.
It will also not be required to retain transfer pricing documents as stipulated in the Corporate Tax Law, with the aim of further reducing the burden of tax compliance on it.
Provisions for Calculating Taxable Income
When new companies apply the Small Business Facilities, the following provisions will not apply to calculating their taxable income:
- Provisions of income exempt from corporate tax
- Transportation facilities within the eligible group.
- Business restructuring facilities.
- Deductible and non-deductible expenses.
- Tax loss facilities.
On the other hand, new companies can carry forward their tax losses and deduct the net benefits from their taxable income according to the general rules for deduction restrictions, if these losses or expenses were incurred in a tax period in which the companies did not apply small business facilities, and they will be carried over to subsequent tax periods in which these facilities are not applied.
Verifying Compliance with New Corporate Tax Exemption Provisions
The Federal Tax Authority, in accordance with the supervisory powers granted to it, exercises its role in verifying the extent of compliance of new companies that have applied for small business facilities, and in this context, it may request from these companies any documents and records related to that.
Misuse of Small Business Facilities
Misuse is related to the case of a fictitious dismissal of businesses carried out by two or more people if their business revenues exceed the limit of three million UAE dirhams, and one or more of them chooses to apply small business facilities based on the fictitious dismissal of businesses in which their business revenues become within the limit stipulated in the law, and thus He can claim business facilities.
When people do such things, we are subject to a corporate tax benefit arrangement or transaction to which the general anti-abuse rules apply.
Verification of the Fictitious Dismissal of Businesses
The Federal Tax Authority is concerned with determining whether the separation of businesses has occurred in a formal manner, and must investigate whether this arrangement was made for legitimate commercial purposes and whether the persons engage in substantially the same business activities, considering relevant circumstances such as financial and organizational ties between them. Anti-abuse rules apply in this area if the main purpose of the arrangement is to obtain a tax advantage.
Federal Tax Authority Procedures to Combat Fictitious Dismissal of Businesses
In line with the necessities that require the existence of sufficient and appropriate guarantees for the protection and integrity of the corporate tax system, the Authority, in the event that it applies the provisions of the general rules against employment to the fictitious dismissal of businesses, issues its decision to address and amend this chapter, that is, to cancel the tax result and deal with the transaction according to its economic reality, and then make The decision will be implemented by issuing a tax assessment in this regard.
VAT Registration UAE, are consultants specialized in corporate tax services in the UAE.