New UAE corporate tax exemptions, amendments and penalties

Aimed at maintaining the UAE’s position as a major investment hub
New UAE corporate tax exemptions, amendments and penalties

The UAE Ministry of Finance recently announced Cabinet Decision No. (81) of 2023, outlining additional conditions for Qualifying Investment Funds under the Federal Decree-Law No. (47) of 2022 on the corporate tax. The Cabinet Decision stipulates additional conditions that investment funds must meet to be treated as a Qualifying Investment Fund and be exempt from Corporate Tax. The decision upholds the integrity of the Corporate Tax system while bolstering the UAE’s competitiveness as an investment hub.

The additional conditions for investment funds, other than Real Estate Investment Trusts (REITs), to be exempt from Corporate Tax, include being primarily engaged in investment business activities, with ancillary or incidental activities not exceeding 5% of their total annual revenue; the share of ownership interests in the investment fund held by a single investor and its related parties not exceeding 30% or 50%, depending on the number of investors in the investment fund; being overseen by an investment manager employing a minimum of three investment professionals; and the day-to-day management of the fund not being controlled by investors.

Read: UAE corporate tax now in full effect with real estate update

To ensure the flexibility of the Corporate Tax system, the diversity of ownership criteria for investment funds other than REITs will be non-binding for the first two financial years of the fund’s establishment, provided that the intent to diversify its ownership after the first two financial years is substantiated.

Regarding REITs, the exemption conditions include the necessity for real estate assets, excluding land held by the REIT, to exceed AED100 million in value, a minimum of 20% of its share capital being publicly listed or wholly owned by two or more institutional investors, and an average real estate asset percentage of at least 70% maintained annually.

All Cabinet and Ministerial Decisions and more information relating to the Corporate Tax Law can be viewed on the Ministry of Finance’s website.

To view Cabinet and Ministerial Decisions and explanatory guidelines on the Corporate Tax Law, please visit here.

Corporate tax non-compliance

Under the Cabinet Decision No. (75) of 2023, administrative penalties will be imposed by the Federal Tax Authority (FTA) for violations related to corporate tax law from August 1, 2023, on taxable persons, whether an individual or a legal entity, who do not comply with the law.

Failure to file and pay corporate tax due on time, including the failure of the registrant to inform the FTA of any case that may require the amendment of the information on his tax record kept by the FTA, will result in penalties.

Penalties would also apply when failing to properly keep records or submitting the required records and other information specified in the tax law.

Key changes

11 key changes have been made, including the definition of the term ‘Assets’ now expanded to include ‘Intangible Assets’ and businesses are now obligated to retain all documents that support all accounting entries.

Books of accounts and supporting documents for real estate Transactions are required to be maintained for seven years from the end of the tax year in which such transaction was conducted (instead of 15 years prescribed earlier).

Other changes include a requirement for any tax documents to be submitted to FTA to be in either English or Arabic (instead of only Arabic as prescribed earlier).

Businesses having tax registration with FTA now need to notify FTA of any change in their e-mail address, trade license or legal status within the prescribed timeline.

All licensing bodies who issue trade licenses to businesses in UAE are now obligated to notify FTA about the basic data and information on each business within 20 business days of any issuance or renewal of a trade license by them.

Taxable persons now need to submit a voluntary disclosure to rectify any error in the tax return, even if such error does not result in any impact on ‘Due Tax’ for such tax period.

The condition of tax agents registered with FTA to have proficiency in Arabic has also been removed, and now tax professionals with proficiency in either English or Arabic can be registered as tax agents with FTA.

Also, a legal entity can now be registered as a tax agent with FTA instead of the old condition that only a natural person can be registered as a tax agent with FTA.

The FTA must also give at least ten business days’ notice to the taxable person before conducting a tax audit instead of the 5-day notice prescribed earlier.

For more on the UAE, click here.