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Impact of corporate tax

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  • Taxation
  • 2022-10-20
  • Wasim Firoz

Impact of corporate tax

What is corporate tax?

A corporate is a legal entity that is distinct and distinct from its stockholders. The Income-tax Act requires both domestic and international corporations to pay corporate tax. A domestic corporation is taxed on its total income, whereas a foreign firm is only taxed on income earned within India, that is, money accumulated or received in India.

The types of companies come under this are:- 

  • Domestic company
    These are companies registered under the companies act and include majorly private and public entities.

  • Foreign Company
    These are not included companies in cts and control and management located in India.

 

 

Free Zone Person transact with mainland UAE but does not have a mainland branch, the Free Zone Person can keep the 0% corporate tax rate if its income from mainland UAE is restricted to 'passive' income.

The 0% corporation tax regime will also apply to transactions between Free Zone Persons and their group firms based on the UAE mainland.

A Free Zone Person who is based in a Designated Zone for VAT purposes can take advantage of the 0% corporation tax rate on profits from the sale of products to UAE mainland enterprises that are the importer of record for such items.

 

As we are aware, corporate tax is going to be effective on July 1, 2023. Though there are some proposed impacts set to happen on people according to the ministry of finance.

UAE corporate tax will apply to UAE firms and other legal persons incorporated in the UAE. Foreign legal entities with permanent establishments in the UAE or earning income from the UAE will be subject to corporate tax. Legal persons include Limited Liability Companies (LLC), Private Shareholding Companies, Public Joint Stock Companies, and other legal structures established under UAE law that have a separate legal personality.

Legal persons incorporated in a foreign jurisdiction are effectively maintained. Get the free corporate tax consultation service from the FTA-approved tax agents. 

The following are types of companies under corporate tax - 

  • Domestic companies in UAE mainland 
  • Companies in UAE free zones 
  • Foreign companies with permanent settlement in UAE 

Classification of residential share of legal people in UAE

Legal persons or companies are classified as residents and none residents - 

 

  • UAE residents have to be liable for payment 
  • Legal residents or companies in Dubai are automatically considered residents 
  • Foreign companies will be treated as residents if they have been working and maintained. Though tax advisors then follow proper strategy related to management. 
  • Non-residents will be subjected to UAE corporate tax on taxable income. 

Progressive UAE corporate tax rate in companies 

According to recent corporate tax law, 0% will apply to corporate annual taxable income.

Added 9% will be added later, the rest can be advised by corporate tax advisors in a more efficient way.

 

UAE corporate tax compliance requirement 

  • Corporate tax registration in UAE 
  • Tax registration number 
  • Calculating and  paying the tax liability 
  • File the tax return within 9 months 
  • Maintain and other records.

 

Key areas of impact for legal persons 

Review of systems and processes 

To assess the company's preparation for the UAE corporate tax framework, an assessment of present procedures and systems will be required. This study will cover revenue and expense accounting, inter-company transactions, capital assets, and inventory management, among other things.

Assess the impact of permanent establishment 

Because the idea of a Permanent Establishment (PE) will be implemented, foreign businesses doing business in the UAE must assess their present business models, long-term agreements and contracts, intragroup and cross-border activities, and so on.

 

These days auditing is a crucial part of every business.

To establish if their financial accounts must be audited by accredited auditing firms in the UAE, mainland enterprises must follow appropriate rules and regulations. Taxable income, on the other hand, will be computed using the profits declared in the financial accounts.

Wasim Firoz AUTHOR
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