On June 1st, 2023, the corporate tax structure of the United Arab Emirates went into effect, bringing a shift for companies doing business in the country. Most businesses will file their first corporate tax return in 2024, so it’s important to be ready to handle the new rules and guarantee the tax season progresses well.
If you are a UAE-based business waiting to navigate the tax season, this guide will help you understand what should be done to implement a stress-free tax season in 2024.
Are you ready to face the tax season of 2024? This article will walk you through:
Understanding Your Tax Obligations
The first step is to understand whether your business falls under the scope of corporate tax. Here’s a detailed breakdown:
Taxable Income Threshold:
- Businesses earning a taxable income exceeding AED 375,000 (approximately USD 102,000) are required to register for Corporate Tax.
- This threshold applies to all types of businesses, including those operating on the mainland and in Free Zones, unless exempted under specific conditions.
Exemptions for Free Zones:
- Certain businesses operating within Free Zones, such as Meydan Free Zone, may be exempt from corporate tax.
- These exceptions are designed to maintain Free Zones as hubs for business and investment.
Qualified Free Zone Person (QFZP) Status:
- Some businesses within Free Zones may qualify for the Qualified Free Zone Person (QFZP) status.
- The QFZP status can exempt eligible businesses from corporate tax, provided they meet specific criteria, such as:
- Conducting qualifying activities within the Free Zone.
- Maintaining adequate substance within the Free Zone (e.g., having sufficient staff and office space).
Verification of Compliance
It’s essential for businesses to verify their specific situation to ensure that they are compliant with corporate tax regulations. Businesses should consult the Federal Tax Authority (FTA) or a tax advisor to determine their obligations and potential exemptions.
Gathering Your Records
Once you’ve determined your tax filing responsibilities, the next step is gathering all the necessary documents. These include:
Financial Statements: Prepare comprehensive financial statements, including cash flow, balance sheet, and income statement. These documents provide a clear picture of your business’s financial health and are critical for accurate tax reporting.
Tax Invoices: Ensure that you have accurate records of all your earnings and expenses. This includes invoices and receipts, which are vital for substantiating your tax claims.
Payroll Records: Maintain detailed payroll records, including information on bonuses, salaries, and any other taxable benefits given to employees. Accurate payroll records ensure proper tax deductions and compliance.
Transfer Pricing Records: If your company engages in transactions with connected parties, such as parent firms or subsidiaries, you must keep transfer pricing records to prove that these transactions are conducted at arm’s length.
Reviewing and Updating Accounting Policies
Your accounting policies may need to be reviewed and updated to comply with the new corporate tax laws. This includes:
Handling of Costs: Clearly define and classify deductible expenses according to the guidelines. Proper categorization of expenses ensures that you maximize your tax deductions while remaining compliant with the law.
Depreciation Methods: Understand the allowed depreciation methods for different assets to accurately determine their tax value. Using the correct depreciation methods can significantly impact your taxable income.
Inventory Valuation: Select the most appropriate inventory valuation technique permitted by the tax code. The method you choose can affect your cost of goods sold and, consequently, your taxable income.
Familiarizing Yourself with Tax Deadlines
Staying on top of tax deadlines is imperative to avoid penalties. Businesses with a December 31st fiscal year-end will likely have their first corporate tax return submission in September 2024. However, it’s important to confirm the exact deadlines with the Federal Tax Authority (FTA) or consult a tax advisor for personalized guidance. The FTA website provides valuable resources and guidance for businesses navigating corporate tax in the UAE.
Utilizing Technology and Professional Help
The UAE government promotes a digital tax system, requiring companies to electronically file their tax returns and other necessary data to the FTA. Familiarize yourself with the FTA’s web portal and invest in reliable accounting software to streamline your tax filing process.
Corporate tax can be complicated, especially for companies unfamiliar with the latest rules. Consider getting advice from a certified tax counselor or accountant who understands the UAE corporate tax system. They can help you accurately prepare your tax return, interpret tax rules, and help meet compliance regulations to avoid fines.
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Time to Face the Tax Season!
Businesses in the UAE can approach the 2024 tax season with confidence by following these steps and remaining proactive. Staying organized, gathering the required documents, and being aware of the new regulations are essential for a seamless and efficient tax filing process. If you wish to know more, read our complete guide to Corporate Tax in the UAE in 2024 here. Keep up with the latest developments in the UAE’s corporate tax system and seek expert advice from Meydan Free Zone today!
