Category: Tax

2025 IRS Tax Inflation Adjustments
The IRS has released the annual inflation adjustments for the tax year 2025, introducing changes to several tax provisions that could affect your financial planning. These adjustments are designed to keep up with inflation, helping taxpayers avoid “bracket creep”—a situation where rising wages push taxpayers into higher tax brackets, resulting in increased tax liability without a real improvement in their living standards. Below, we’ll explore the key updates and what they mean for your finances.

2025 IRS Tax Inflation Adjustments: What You Need to Know

1. Changes to the Standard Deduction for 2025

The standard deduction serves as a key element in tax calculations, reducing your taxable income. In 2025, the IRS has increased the standard deduction amounts across different filing statuses:
- Single Taxpayers and Married Individuals Filing Separately: The standard deduction will increase to $15,000, up by $400 from 2024.
- Married Couples Filing Jointly: The standard deduction for this group will be $30,000, an increase of $800 from the previous year.
- Heads of Household: Individuals who qualify for this status will see their standard deduction rise to $22,500, an increase of $600.
These adjustments aim to provide some relief for taxpayers by reducing their taxable income, potentially lowering the amount of federal income tax owed.

2. Updates to Marginal Tax Rates

Marginal tax rates refer to the percentage of tax applied to your income for each tax bracket. For 2025, the marginal tax rates and income thresholds have been adjusted as follows:
- 37% Tax Rate: This rate applies to individual single taxpayers with incomes over $626,350.
- 35% Tax Rate: Applies to incomes over $250,525.
- 32% Tax Rate: For incomes exceeding $197,300.
- 24% Tax Rate: Applies to incomes over $103,350.
- 22% Tax Rate: For incomes exceeding $48,475.
- 12% Tax Rate: Applies to incomes over $11,925.
- 10% Tax Rate: This rate is applicable for incomes $11,925 or less.
Moreover, these adjustments help taxpayers by aligning income brackets with inflation, thereby ensuring that tax burdens do not increase solely due to cost-of-living adjustments.

3. Earned Income Tax Credit (EITC) Adjustments

The Earned Income Tax Credit (EITC) is a refundable tax credit aimed at helping low- to moderate-income working individuals and families. For the 2025 tax year, the EITC has been increased:
- Maximum EITC for Taxpayers with Three or More Qualifying Children: The amount rises to $8,046, up from $7,830 in 2024.
This increase offers greater financial support for larger families, helping them keep more of their earned income.

4. Alternative Minimum Tax (AMT) Exemption Changes

In addition, the Alternative Minimum Tax (AMT) is specifically designed to ensure that taxpayers with higher incomes pay a minimum amount of tax, regardless of deductions or credits. The exemption levels for the AMT have been adjusted for 2025:
- Unmarried Individuals: The exemption amount increases to $88,100 and begins to phase out at $626,350.
- Married Couples Filing Jointly: Their exemption amount rises to $137,000, with phase-out beginning at $1,252,700.
Furthermore, these changes are specifically intended to prevent more taxpayers from being subject to the AMT as their incomes grow due to inflation.

5. Why the Inflation Adjustments Matter

The IRS annually adjusts tax provisions to account for inflation. These adjustments help to:
- Additionally, raising income thresholds helps prevent bracket creep, as taxpayers are less likely to move into higher tax brackets due to inflation-related wage increases. This, in turn, reduces the risk of paying more taxes without a real increase in purchasing power.
- Increase Deductions and Credits: Higher standard deductions and credits like the EITC help lower the taxable income and increase tax refunds, which can provide significant financial relief.
6. Other Notable Adjustments

Aside from the primary changes listed above, there are other tax-related adjustments that may impact various taxpayers:
- Estate Tax Exclusion: For 2025, the estate tax exclusion amount has been adjusted for inflation. Estates valued at $14.45 million or less will not be subject to federal estate taxes, up from $13.92 million in 2024.
- Similarly, the IRS has also raised the annual limit for Flexible Spending Account (FSA) contributions. The 2025 limit will be $3,100, up from $3,050 in 2024.
- 401(k) and Other Retirement Plan Contributions: The contribution limit for 401(k) plans and other employer-sponsored retirement plans is expected to increase to $23,000 from $22,500 in 2024. Moreover, the catch-up contribution limit for individuals aged 50 and older will also see an increase, reflecting cost-of-living adjustments.
These changes aim to incentivize savings and planning for retirement, providing taxpayers with more opportunities to reduce taxable income through contributions.

7. Strategies for Tax Planning in 2025

Understanding these IRS updates can help you make better decisions regarding your financial planning. Here are some strategies to consider:

A. Adjust Your Withholding

If you anticipate changes in your taxable income due to inflation adjustments, it may be prudent to review your tax withholding. Consequently, adjusting your Form W-4 can help you avoid owing taxes when filing your return, while also ensuring that you don’t receive an unnecessarily large refund.

B. Maximize Contributions to Retirement Accounts

With increased contribution limits for 401(k) plans and IRAs, taxpayers should consider maximizing their retirement savings to take full advantage of tax benefits. Contributions to traditional IRAs and 401(k) accounts are tax-deductible, lowering your taxable income for the year.

C. Take Advantage of the Higher Standard Deduction

For taxpayers who do not itemize, the higher standard deduction for 2025 can significantly help reduce taxable income. Furthermore, this change can be particularly beneficial for single filers and married couples filing jointly who do not have enough expenses to warrant itemizing deductions.

D. Plan for the Earned Income Tax Credit

If you qualify for the EITC, it is important to be aware of the updated income limits and credit amounts. Taxpayers with children may be able to maximize their benefits by planning their earnings strategically.

E. Consider Estate Planning

The increase in the estate tax exclusion offers more flexibility in estate planning. High-net-worth individuals should review their estate plans to ensure they are making the most of the higher exclusion amount, which could help reduce the taxable value of their estate.

8. Preparing for Potential Tax Law Changes

It is crucial to note that, although these inflation adjustments are set for the 2025 tax year, tax laws are subject to change. Keeping informed about potential legislation that may impact tax rates, deductions, or credits can help you stay ahead in your financial planning.
- Keep an Eye on Congress: Tax policy is often a topic of political debate, and changes to the tax code could happen. Staying informed about any proposed tax law changes can help you anticipate how future legislation may impact your taxes.
- Consult a Tax Professional: Navigating tax law changes can be complex. Working with a tax professional can ensure that you are taking advantage of all available tax breaks and complying with the latest regulations.
Final Thoughts

The IRS’s 2025 tax inflation adjustments aim to keep tax provisions in line with the rising cost of living. By understanding these updates, taxpayers can make informed financial decisions to minimize tax liabilities and maximize benefits. Regardless of whether it’s taking advantage of higher deductions, credits, or retirement contribution limits, effective tax planning can lead to significant savings.

To maximize your benefits in the 2025 tax year, it is advisable to review your financial situation, adjust your tax strategies, and plan accordingly to minimize the impact of taxes on your income.

Ref.: IRS releases tax inflation adjustments for tax year 2025 | Internal Revenue Service

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October 22, 2024
Essential Guide to Corporate Tax Documentation in the UAE for 2024
As corporate tax regulations evolve, businesses in the UAE must adapt to stay compliant and efficient in their financial management. One of the most critical aspects of corporate tax management is ensuring that your documentation is accurate and well-organized. This blog will explore why proper documentation is crucial for corporate tax in the UAE, particularly in 2024, with evolving tax laws and greater scrutiny from authorities. Let’s understand why documentation is important for corporate tax in UAE:

Must Read: Calculating Corporate Tax for a Free Zone Person – Rohitashva Singhvi

Why Proper Documentation is Crucial for Corporate Tax in the UAE – 2024 Guide

The Importance of Proper Corporate Tax Documentation

When dealing with corporate tax in the UAE, having a robust system for maintaining and managing your documentation can offer multiple advantages. Let’s explore the main reasons why proper documentation is essential for your business:

1. Compliance with Tax Laws

Staying compliant with UAE’s corporate tax laws is not optional—it’s a necessity. As businesses navigate the regulations, the importance of thorough documentation becomes even more apparent.

Avoiding Penalties: In 2024, the UAE’s corporate tax regime has grown stricter in enforcing regulations. One of the primary reasons for maintaining accurate documentation is to avoid penalties and fines. Incomplete or erroneous documentation can lead to tax miscalculations, ultimately resulting in heavy penalties. By ensuring that your business’s financial records are detailed and precise, you are protecting it from potential legal action or financial losses.

Supporting Claims: Accurate documentation also supports any tax deductions, credits, or exemptions you may claim. For instance, if your business claims tax deductions on expenses, proper receipts and invoices can serve as evidence to back up those claims. This level of thoroughness ensures that you comply with local tax regulations and that you maximize the financial benefits available under the UAE’s tax regime.

2. Accurate Tax Calculations

Another vital role of proper documentation is to facilitate accurate tax calculations. With precise record-keeping, businesses can prevent tax errors, which can have costly consequences.

Preventing Errors: Errors in tax calculations can either lead to overpayment or underpayment, both of which are undesirable outcomes. Overpayment may negatively affect your cash flow, while underpayment can trigger penalties. By maintaining comprehensive documentation, such as invoices, payroll records, and bank statements, you can avoid these pitfalls and ensure accurate tax filings in the UAE.

Supporting Audits: Tax audits are an inevitable reality for many businesses, especially with the UAE’s increasing focus on corporate tax compliance in 2024. If your business is selected for an audit, having accurate and well-organized documentation can save you from unnecessary stress. It enables you to provide clear evidence and explanations to support your tax filings, reducing the risk of penalties or further investigations.

3. Financial Transparency

In addition to ensuring compliance and accuracy, proper documentation also plays a significant role in maintaining financial transparency—a crucial factor for building trust with stakeholders.

Stakeholder Confidence: Investors, lenders, and other stakeholders in your business rely on transparent financial records to gauge your company’s financial health. If your documentation is incomplete or disorganized, it can erode their confidence. On the other hand, well-maintained financial records demonstrate that your business is transparent, organized, and well-managed. This trust is particularly important if you are seeking external financing or looking to attract new investors in 2024.

Decision-Making: Accurate financial records provide invaluable insights into your business’s financial position. These records are essential for making informed decisions on budgeting, cost-cutting, and investments. With the UAE’s corporate tax laws potentially impacting cash flow, having a clear understanding of your company’s finances can help you make strategic decisions that optimize your tax liabilities and enhance profitability.

4. Maintaining Historical Records

Having proper historical records is crucial for both ongoing financial analysis and in the event of legal disputes.

Business Analysis: Analyzing your company’s historical financial performance is key to identifying trends, making forecasts, and planning for future growth. With proper documentation in place, you can easily access past records to perform financial analyses that will help in decision-making. For instance, reviewing historical tax filings and financial statements can highlight areas where your business may be able to improve its efficiency or reduce tax liabilities.

Legal Disputes: In the unfortunate event of a legal dispute, your documentation can serve as a powerful form of evidence. Whether it involves disputes with clients, employees, or tax authorities, accurate and organized records can strengthen your position. It ensures you can back up your claims with facts and figures, reducing the likelihood of unfavorable legal outcomes.

Key Documents to Maintain for Corporate Tax Compliance in the UAE

Now that we’ve explored the importance of proper documentation, it’s essential to know which documents you should prioritize. Here’s a breakdown of key documents that UAE businesses should maintain for corporate tax purposes in 2024:

1. Financial Statements

Financial statements such as income statements, balance sheets, and cash flow statements are the backbone of your corporate tax filings. These documents provide a clear snapshot of your business’s financial health, making them essential for accurate tax calculations and supporting claims.

2. Invoices and Receipts

Keeping all invoices and receipts related to sales, purchases, and business expenses is critical. These documents substantiate any deductions or credits claimed and serve as a reference in case of discrepancies.

3. Payroll Records

Payroll records are essential for tracking employee wages, deductions, and tax withholdings. These records not only help in complying with tax regulations but also ensure that employee compensation is accurately reflected in your tax filings.

4. Bank Statements

Bank statements provide an additional layer of financial transparency, ensuring that all business transactions are accurately reflected in your tax documentation. Keeping detailed bank records will help reconcile discrepancies between your financial statements and actual cash flow.

5. Contracts and Agreements

Maintaining contracts and agreements with suppliers, customers, and employees is essential for documenting the nature of business transactions. These records can be useful for verifying the legitimacy of certain expenses or deductions, especially during audits.

6. Expense Reports

Employee-incurred expenses can add up, and proper documentation is necessary to claim these expenses as tax deductions. Ensure that detailed expense reports are maintained, along with supporting documentation such as receipts and invoices.

7. Tax Returns

Finally, it’s essential to keep a record of all past tax returns and their supporting documentation. This can serve as a point of reference when preparing future tax filings and can be crucial in the event of an audit or tax dispute.

How Proper Documentation Minimizes Tax Risks

Maintaining proper documentation is one of the best ways to minimize tax-related risks. Here are some ways how good documentation can protect your business:
- Reduced Risk of Penalties: Ensuring that all records are accurate and up-to-date means fewer chances of discrepancies or miscalculations in your tax filings, reducing the likelihood of penalties.
- Improved Audit Preparedness: In the event of a tax audit, proper documentation allows you to respond quickly and effectively, providing clear evidence to support your claims.
- Increased Financial Control: Comprehensive documentation gives you more control over your finances, allowing you to identify areas where you can cut costs, optimize deductions, and better manage your tax liabilities.
- Legal Protection: In the case of legal disputes, proper documentation serves as evidence, helping you resolve disputes in your favor and protecting your business from financial liabilities.
The Role of Digital Solutions in Documentation

As the UAE’s corporate tax landscape evolves in 2024, many businesses are turning to digital solutions to streamline their documentation processes. Cloud-based accounting software and tax management platforms allow businesses to maintain accurate and organized records while reducing the administrative burden.

These digital tools can automatically generate financial statements, track expenses, and store important documents in one place, making it easier to access and manage your records. With real-time reporting and audit trails, these tools also enhance transparency and compliance.

Conclusion: The Future of Corporate Tax Documentation in the UAE

As the UAE’s corporate tax laws continue to evolve, maintaining proper documentation is more important than ever. Businesses that prioritize accuracy, organization, and transparency in their financial records will not only ensure compliance with tax laws but also gain valuable insights into their financial health, improve decision-making, and build trust with stakeholders.

By focusing on comprehensive documentation, UAE businesses can mitigate the risk of penalties, avoid costly errors, and make strategic decisions that foster long-term growth. Whether you’re a small business or a large corporation, the importance of proper documentation cannot be overstated. As we move forward in 2024, investing in a robust documentation system is key to thriving in the UAE’s increasingly regulated corporate tax environment.

Must Read: Top 50 Financial Accounting Terms – Rohitashva Singhvi

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October 7, 2024

Calculating Corporate Tax for a Free Zone Person

Corporate Tax Rate for a QFZP

If a Free Zone Person (FZP) meets all the conditions, including the de minimis requirements, to be a Qualifying Free Zone Person (QFZP), the applicable Corporate Tax rates are:

0% Corporate Tax rate on Qualifying Income
9% Corporate Tax rate on Taxable Income that is not Qualifying Income

Note: A QFZP is not entitled to a 0% Corporate Tax rate on its first AED 375,000 of Taxable Income.

Qualifying Income

Qualifying Income is defined based on the following categories:

Transactions with a Free Zone Person who is the Beneficial Recipient of the transaction (excluding Revenue from Excluded Activities)
Transactions related to Qualifying Activities (excluding Revenue from Excluded Activities)
Qualifying Income from Qualifying Intellectual Property
Other sources (including Revenue from Excluded Activities) if the QFZP meets the de minimis requirements

Revenue from the following sources does not qualify as Qualifying Income, even if it falls within the categories listed above:

Revenue attributable to a Foreign Permanent Establishment
Revenue attributable to a Domestic Permanent Establishment
Revenue from Immovable Property (other than Commercial Property located in a Free Zone when the income arises from a transaction with a Free Zone Person)
Revenue from the ownership or exploitation of intellectual property (other than Qualifying Income from Qualifying Intellectual Property)

Taxable Income That Is Not Qualifying Income

To determine the Taxable Income that is not Qualifying Income, which will be subject to the 9% Corporate Tax rate, a QFZP must:

Separate the Revenue in its Financial Statements into Revenue pertaining to the Qualifying Income component and the Taxable Income component.
Allocate the expenses in its Financial Statements against these components in a reasonable manner, consistent with the arm’s length principle.
Apply Article 20 of the Corporate Tax Law (general rules for determining Taxable Income) to determine the Taxable Income that is not Qualifying Income.

Corporate Tax on QFZP with a Domestic Permanent Establishment

Example: Company J

Revenue for the Tax Period Ending 31 December 2024:

AED 1,000,000 attributable to Qualifying Activities that are not Excluded Activities performed in a Free Zone.
AED 2,000,000 attributable to activities conducted through a Domestic Permanent Establishment.

Operating Expenses for the Tax Period:

AED 600,000 incurred by the Free Zone parent.
AED 1,400,000 incurred by its Domestic Permanent Establishment.
AED 300,000 incurred in the Domestic Permanent Establishment for HR administrative activities that support both the Free Zone parent and Domestic Permanent Establishment. Applying an appropriate allocation key (e.g., relative headcount), Company J determines that 50% of these expenses should be attributed to its Free Zone parent.

Allocation of Revenue and Expenses: Based on the arm’s length principle, Company J determines that the Revenue and expenses in its Financial Statements for the Tax Period ending 31 December 2024 can be allocated between Qualifying Income and Taxable Income as follows (amounts in AED):

Items	Total	Domestic Permanent Establishment (Taxable Income)	Free Zone Parent (Qualifying Income)
Revenue	3,000,000	2,000,000	1,000,000
Less: Direct expenses	2,000,000	1,400,000	600,000
Less: Allocated expenses	300,000	150,000	150,000
Profit	700,000	450,000	250,000

Calculation Table

Corporate Tax Calculation:

Company J will be subject to a 0% Corporate Tax rate on its Qualifying Income of AED 250,000.
Company J will be subject to a 9% Corporate Tax rate on the AED 450,000 profit attributable to its Domestic Permanent Establishment, resulting in a Corporate Tax of AED 40,500.

This calculation assumes there are no further adjustments as per Article 20 of the Corporate Tax Law.

References:

Article 3(2) of the Corporate Tax Law
Article 3(1) of Cabinet Decision No. 100 of 2023
Corporate Tax Guide | Free Zone Persons | CTGFZP1

June 1, 2024

A Deep Dive into the UAE Corporate Tax & Currency Conversion Guidelines
In June 2023, the United Arab Emirates (UAE) witnessed a significant shift in its economic landscape with the introduction of the Corporate Tax. For businesses operating in the region, understanding and adhering to the associated guidelines became paramount. In this blog post, we’ll unravel the intricacies of these guidelines, providing businesses with a comprehensive roadmap to navigate the UAE’s tax framework.
1. Calculate Taxable Income:
The journey begins with calculating your company’s taxable income—a fundamental step in the tax process. Businesses must meticulously determine their profits after factoring in allowable deductions and expenses. The guidelines offer clarity on which expenses are deductible and provide insights into handling unique situations, such as foreign income and free zone operations.
1. Apply the Tax Rate:
Once your taxable income is established, the next step is applying the tax rate. The standard corporate tax rate in the UAE stands at 9%. However, exemptions and reduced rates are applicable to certain entities. Understanding this is crucial, as it determines the percentage of your taxable income that will be allocated to tax obligations.
1. Convert Foreign Currency Transactions:
Operating in a global economy often involves dealing with multiple currencies. For tax purposes, the UAE dirham (AED) is the official currency, necessitating the conversion of foreign transactions into AED. This involves utilizing exchange rates set by the authorities to translate the value of income earned in other currencies into AED for accurate tax calculations.
1. Comply with Reporting and Payment Requirements:
Fulfilling reporting and payment obligations marks the final leg of this journey. The guidelines meticulously outline deadlines and procedures for electronically filing tax returns and making timely tax payments. Compliance at this stage ensures businesses meet their tax obligations accurately and within the stipulated time frames.

Additional Considerations:

Given the novelty of these guidelines, businesses should remain vigilant for any further clarifications or updates from the authorities. Staying informed is key, and consulting with qualified tax professionals is strongly advised to ensure continued compliance with the evolving tax landscape.

Remember:

It’s important to note that this information serves as a general guide and does not constitute financial or tax advice. Businesses are encouraged to seek professional guidance to address their specific circumstances and ensure compliance with the UAE Corporate Tax & Currency Conversion Guidelines.

Conclusion:

In conclusion, these guidelines serve as a compass for businesses navigating the complex terrain of the UAE Corporate Tax. By understanding and implementing these steps, companies can not only meet their tax obligations but also contribute to the economic stability and growth of the UAE. Stay informed, seek professional advice, and embark on this journey with confidence and compliance.
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UAE Corporate Tax – All in one basic info

What is Corporate Tax?

Corporate Tax is a form of direct tax levied on the net income of corporations and other businesses.

Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.

Who is subject to Corporate Tax?

Broadly, Corporate Tax applies to the following “Taxable Persons”:

UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE;
Natural persons (individuals) who conduct a Business or Business Activity in the UAE as specified in a Cabinet Decision to be issued in due course; and
Non-resident juridical persons (foreign legal entities) that have a Permanent Establishment in the UAE (which is explained under [Section 8]).

Juridical persons established in a UAE Free Zone are also within the scope of Corporate Tax as “Taxable Persons” and will need to comply with the requirements set out in the Corporate Tax Law. However, a Free Zone Person that meets the conditions to be considered a Qualifying Free Zone Person can benefit from a Corporate Tax rate of 0% on their Qualifying Income (the conditions are included in [Section 14]).

Non-resident persons that do not have a Permanent Establishment in the UAE or that earn UAE sourced income that is not related to their Permanent Establishment may be subject to Withholding Tax (at the rate of 0%). Withholding tax is a form of Corporate Tax collected at source by the payer on behalf of the recipient of the income. Withholding taxes exist in many tax systems and typically apply to the cross-border payment of dividends, interest, royalties and other types of income.

Who is exempt from Corporate Tax?

Certain types of businesses or organisations are exempt from Corporate Tax given their importance and contribution to the social fabric and economy of the UAE. These are known as Exempt Persons and include:

Automatically exempt	● Government Entities● Government Controlled Entities that are specified in a Cabinet Decision
Exempt if notified to the Ministry of Finance (and subject to meeting certain conditions)	● Extractive Businesses● Non-Extractive Natural Resource Businesses
Exempt if listed in a Cabinet Decision	● Qualifying Public Benefit Entities
Exempt if applied to and approved by the Federal Tax Authority (and subject to meeting certain conditions)	● Public or private pension and social security funds● Qualifying Investment Funds● Wholly-owned and controlled UAE subsidiaries of a Government Entity, a Government Controlled Entity, a Qualifying Investment Fund, or a public or private pension or social security fund

In addition to not being subject to Corporate Tax, Government Entities, Government Controlled Entities that are specified in a Cabinet Decision, Extractive Businesses and Non-Extractive Natural Resource Businesses may also be exempted from any registration, filing and other compliance obligations imposed by the Corporate Tax Law, unless they engage in an activity which is within the charge of Corporate Tax.

How is a Taxable Person subject to Corporate Tax?

In line with the tax regimes of most countries, the Corporate Tax Law taxes income on both a residence and source basis. The applicable basis of taxation depends on the classification of the Taxable Person.

A “Resident Person” is taxed on income derived from both domestic and foreign sources (i.e. a residence basis).
A “Non-Resident Person” will be taxed only on income derived from sources within the UAE (i.e. a source basis).

Residence for Corporate Tax purposes is not determined by where a person resides or is domiciled but instead by specific factors that are set out in the Corporate Tax Law. If a Person does not satisfy the conditions for being either a Resident or a Non-Resident person then they will not be a Taxable Person and will not therefore be subject to Corporate Tax.

Who is a Resident Person?

Companies and other juridical persons that are incorporated or otherwise formed or recognised under the laws of the UAE will automatically be considered a Resident Person for Corporate Tax purposes. This covers juridical persons incorporated in the UAE under either mainland legislation or applicable Free Zone regulations, and would also include juridical persons created by a specific statute (e.g. by a special decree).

Foreign companies and other juridical persons may also be treated as Resident Persons for Corporate Tax purposes where they are effectively managed and controlled in the UAE. This shall be determined with regard to the specific circumstances of the entity and its activities, with a determining factor being where key management and commercial decisions are in substance made.

Natural persons will be subject to Corporate Tax as a “Resident Person” on income from both domestic and foreign sources, but only insofar as such income is derived from a Business or Business Activity conducted by the natural person in the UAE. Any other income earned by a natural person would not be within the scope of Corporate Tax.

Who is a Non-Resident Person?

Non-Resident Persons are juridical persons who are not Resident Persons and:

have a Permanent Establishment in the UAE; or
derive State Sourced Income.

Non-Resident Persons will be subject to Corporate Tax on Taxable Income that is attributable to their Permanent Establishment (which is explained under Section 8).

Certain UAE sourced income of a Non-Resident Person that is not attributable to a Permanent Establishment in the UAE will be subject to Withholding Tax at the rate of 0%.

What is a Permanent Establishment?

The concept of Permanent Establishment is an important principle of international tax law used in corporate tax regimes across the world. The main purpose of the Permanent Establishment concept in the UAE Corporate Tax Law is to determine if and when a foreign person has established sufficient presence in the UAE to warrant the business profits of that foreign person to be subject to Corporate Tax.

The definition of Permanent Establishment in the Corporate Tax Law has been designed on the basis of the definition provided in Article 5 of the OECD Model Tax Convention on Income and Capital and the position adopted by the UAE under the Multilateral Instrument to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. This allows foreign persons to use the relevant Commentary of Article 5 of the OECD Model Tax Convention when assessing whether they have a Permanent Establishment or not in the UAE. This assessment should consider the provisions of any bilateral tax agreement between the country of residence of the Non-Resident Person and the UAE.

What is Corporate Tax imposed on?

Corporate Tax is imposed on Taxable Income earned by a Taxable Person in a Tax Period.

Corporate Tax would generally be imposed annually, with the Corporate Tax liability calculated by the Taxable Person on a self-assessment basis. This means that the calculation and payment of Corporate Tax is done through the filing of a Corporate Tax Return with the Federal Tax Authority by the Taxable Person.

The starting point for calculating Taxable Income is the Taxable Person’s accounting income (i.e. net profit or loss before tax) as per their financial statements. The Taxable Person will then need to make certain adjustments to determine their Taxable Income for the relevant Tax Period. For example, adjustments to accounting income may need to be made for income that is exempt from Corporate Tax and for expenditure that is wholly or partially non-deductible for Corporate Tax purposes.

What income is exempt?

The Corporate Tax Law also exempts certain types of income from Corporate Tax. This means that a Taxable Persons will not be subject to Corporate Tax on such income and cannot claim a deduction for any related expenditure. Taxable Persons who earn exempt income will remain subject to Corporate Tax on their Taxable Income.

The main purpose of certain income being exempt from Corporate Tax is to prevent double taxation on certain types of income. Specifically, dividends and capital gains earned from domestic and foreign shareholdings will generally be exempt from Corporate Tax. Furthermore, a Resident Person can elect, subject to certain conditions, to not take into account income from a foreign Permanent Establishment for UAE Corporate Tax purposes.

What expenses are deductible?

In principle, all legitimate business expenses incurred wholly and exclusively for the purposes of deriving Taxable Income will be deductible, although the timing of the deduction may vary for different types of expenses and the accounting method applied. For capital assets, expenditure would generally be recognised by way of depreciation or amortisation deductions over the economic life of the asset or benefit.

Expenditure that has a dual purpose, such as expenses incurred for both personal and business purposes, will need to be apportioned with the relevant portion of the expenditure treated as deductible if incurred wholly and exclusively for the purpose of the taxable person’s business.

Certain expenses which are deductible under general accounting rules may not be fully deductible for Corporate Tax purposes. These will need to be added back to the Accounting Income for the purposes of determining the Taxable Income. Examples of expenditure that is or may not be deductible (partially or in full) include:

Types of Expenditures	Limitation to deductibility
BribesFines and penalties (other than amounts awarded as compensation for damages or breach of contract)Donations, grants or gifts made to an entity that is not a Qualifying Public Benefit EntityDividends and other profits distributionsCorporate Tax imposed under the Corporate Tax LawExpenditure not incurred wholly and exclusively for the purposes of the Taxable person’s BusinessExpenditure incurred in deriving income that is exempt from Corporate Tax	No deduction
Client entertainment expenditure	Partial deduction of 50% of the amount of the expenditure
Interest expenditure	Deduction of net interest expenditure exceeding a certain de minimis thresholdup to 30% of the amount of earnings before the deduction of interest, tax, depreciation and amortisation (except for certain activities)

What is the Corporate Tax rate?

Corporate Tax will be levied at a headline rate of 9% on Taxable Income exceeding AED 375,000. Taxable Income below this threshold will be subject to a 0% rate of Corporate Tax.

Corporate Tax will be charged on Taxable Income as follows:

Resident Taxable Persons
Taxable Income not exceeding AED 375,000(this amount is to be confirmed in a Cabinet Decision)	0%
Taxable Income exceeding AED 375,000	9%
Qualifying Free Zone Persons
Qualifying Income	0%
Taxable Income that does not meet the Qualifying Income definition	9%

What is the Withholding Tax rate?

A 0% withholding tax may apply to certain types of UAE sourced income paid to non-residents. Because of the 0% rate, in practice, no withholding tax would be due and there will be no withholding tax related registration and filing obligations for UAE businesses or foreign recipients of UAE sourced income.

Withholding tax does not apply to transactions between UAE resident persons.

When can a Free Zone Person be a Qualifying Free Zone Person?

A Free Zone Person that is a Qualifying Free Zone Person can benefit from a preferential Corporate Tax rate of 0% on their “Qualifying Income” only.

In order to be considered a Qualifying Free Zone Person, the Free Zone Person must:

maintain adequate substance in the UAE;
derive ‘Qualifying Income’;
not have made an election to be subject to Corporate Tax at the standard rates; and
comply with the transfer pricing requirements under the Corporate Tax Law.

The Minister may prescribe additional conditions that a Qualifying Free Zone Person must meet.

If a Qualifying Free Zone Person fails to meet any of the conditions, or makes an election to be subject to the regular Corporate Tax regime, they will be subject to the standard rates of Corporate Tax from the beginning of the Tax Period where they failed to meet the conditions.

What are Tax Groups, and when can they be formed?

Two or more Taxable Persons who meet certain conditions (see below) can apply to form a “Tax Group” and be treated as a single Taxable Person for Corporate Tax purposes.

To form a Tax Group, both the parent company and its subsidiaries must be resident juridical persons, have the same Financial Year and prepare their financial statements using the same accounting standards.

Additionally, to form a Tax Group, the parent company must:

own at least 95% of the share capital of the subsidiary;
hold at least 95% of the voting rights in the subsidiary; and
is entitled to at least 95% of the subsidiary’s profits and net assets.

The ownership, rights and entitlement can be held either directly or indirectly through subsidiaries, but a Tax Group cannot include an Exempt Person or Qualifying Free Zone Person.

How to calculate the Taxable Income of a Tax Group?

To determine the Taxable Income of a Tax Group, the parent company must prepare consolidated financial accounts covering each subsidiary that is a member of the Tax Group for the relevant Tax Period. Transactions between the parent company and each group member and transactions between the group members would be eliminated for the purposes of calculating the Taxable Income of the Tax Group.

Registering, filing and paying Corporate Tax

All Taxable Persons (including Free Zone Persons) will be required to register for Corporate Tax and obtain a Corporate Tax Registration Number. The Federal Tax Authority may also request certain Exempt Persons to register for Corporate Tax.

Taxable Persons are required to file a Corporate Tax return for each Tax Period within 9 months from the end of the relevant period. The same deadline would generally apply for the payment of any Corporate Tax due in respect of the Tax Period for which a return is filed.

Illustrated below are examples of the registration, filing and payment deadlines associated for Taxable Persons with a Tax Period (Financial Year) ending on 31 May or 31 December (respectively).

filing and payment deadlines associated for Taxable Persons with a Tax Period (Financial Year) ending on 31 May or 31 December (respectively).

How to prepare for Corporate Tax?

Read the Corporate Tax Law and the supporting information available on the websites of the Ministry of Finance and the Federal Tax Authority.
Use the available information to determine whether your business will be subject to Corporate Tax and if so, from what date.
Understand the requirements for your business under the Corporate Tax Law, including, for example:
1. Whether and by when your business needs to register for Corporate Tax;
2. What is the accounting / Tax Period for your business;
3. By when your business would need to file a Corporate Tax return;
4. What elections or applications your business may or should make for Corporate Tax purposes;
5. What financial information and records your business will need to keep for Corporate Tax purposes;
Regularly check the websites of the Ministry of Finance and the Federal Tax Authority for further information and guidance on the Corporate Tax regime.

Sources: FTA

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June 23, 2023

UAE VAT Important FAQ
What is VAT?

VAT is a transaction-based indirect tax, which is charged and collected at each stage
of the supply chain by legal and natural persons (“persons”) which meet the
requirements to be registered for VAT.
Thus, persons which are either registered or are required to register for VAT (known
as “taxable persons”) charge VAT to their customers on taxable supplies of goods or
services. A taxable supply is defined in the VAT legislation as a “supply of goods or
services for a consideration by a person conducting business in the UAE, and does not
include an exempt supply”. As a consequence, for a supply to be a taxable supply,
the following conditions must be met:
• there needs to be a supply of goods or services;
• the supply has to be for consideration;
• the supply has to be made by a person who is conducting business in the UAE;
and
• the supply should not be an exempt supply.
Taxable supplies may either be subject to the standard rate of 5% or zero rate
(i.e. 0%). A supply cannot be a taxable supply if it is an exempt supply. Where a supply
is neither a taxable supply nor an exempt supply, it will be outside the scope of UAE
VAT. VAT which taxable persons charge to their customers is known as “output tax”. On a
periodic basis, taxable persons are required to account for output tax to the FTA. This
is done by submitting a periodic tax return (also known as a “VAT return”).
It should be noted that taxable persons will typically be charged VAT (known as “input
tax”) by their suppliers when they acquire goods and services. Taxable persons are
generally able to recover input tax, subject to certain conditions. Where the conditions
allowing recovery of input tax are met, taxable persons are able to deduct this input
tax from the value of output tax declared in the same VAT return.
The difference between the output tax and input tax reported by a taxable person in
their VAT returns is either the net VAT payable to the FTA (if the output tax exceeds
the input tax) or net VAT recoverable from the FTA (if the input tax exceeds the output
tax) for that specific tax return period.

What are VAT registration requirements?
VAT registration process as per below details:

As mentioned above, a person is only required to account for VAT in the UAE, if it is
a taxable person – that is, if the person is either registered for VAT or is obligated to
register for VAT. It is, therefore, necessary to determine when a person is required to
be registered for VAT.
VAT registration may be either mandatory or voluntary. It should be noted that
different registration requirements and conditions may apply to both mandatory and
voluntary registrations depending on whether a person has a place of residence in the
UAE. As a consequence, it is important for a person to know whether or not it is
resident in the UAE when considering which registration rules apply to it.
A person would have a place of residence in the UAE for the purposes of VAT
registration if the person has a place of establishment or fixed establishment in the
UAE. The terms are defined in the Decree-Law:4
• “Place of Establishment” is the place where a business is legally established in
a country pursuant to the decision of its establishment, in which significant
management decisions are taken or central management functions are
conducted.
• “Fixed Establishment” is any fixed place of business, other than the Place of
Establishment, in which the person conducts his business regularly or
permanently and where sufficient human and technology resources exist to
enable the person to supply or acquire goods or services, including the person’s
branches.

What are mandatory points for registration?
A person resident in the UAE is required to register for VAT if any of the following
apply:5
• the total value of their taxable supplies made within the UAE and imports into
the UAE exceeded AED 375,000 over the previous 12-month period; or
• the person anticipates that the total value of their taxable supplies made within
the UAE and imports into the UAE will exceed AED 375,000 in the next 30 days.
Supplies of goods or services made in the UAE in the course of business.
• Any goods or services that the person has imported into the UAE that would
have been subject to VAT had they been supplied in the UAE.
The person should not include in this calculation the value of any supplies which are
either exempt from VAT or are outside the scope of UAE VAT.

What does a business need to do to prepare for VAT?
Businesses will need to meet certain requirements to fulfil their tax obligations. To fully comply with VAT, businesses will need to consider the VAT impact on their core operations, financial management and book-keeping, technology, and perhaps even their human resource mix (e.g., accountants and tax advisors). It is essential that businesses try to understand the implications of VAT and make every effort to align their business model to government reporting and compliance requirements.

How will real estate be treated?

The VAT treatment of real estate will depend on whether it is a commercial or residential property.

Supplies (including sales or leases) of commercial properties will be taxable at the standard VAT rate (i.e 5%).

On the other hand, supplies of residential properties will generally be exempt from VAT. This will ensure that VAT would not constitute an irrecoverable cost to persons who buy their own properties. In order to ensure that real estate developers can recover VAT on construction of residential properties, the first supply of residential properties (through sale or lease) within 3 years from their completion will be zero-rated.

Will there be VAT grouping?
Businesses that satisfy certain requirements covered under the Legislation (such as being resident in the UAE and being related/associated parties) will be able to register as a VAT group. VAT grouping would generally simplify accounting for VAT.

How will insurance be treated?
Generally, insurance (vehicle, medical, etc) is taxable. Life insurance, however, is an exempt service.

How will financial services be treated?
Fee based financial services are subject to VAT while margin based products are exempt.

How will Islamic finance be treated?

Islamic finance products are consistent with the principles of sharia and therefore often operate differently from financial products that are common internationally.

To ensure that there are no inconsistencies between the VAT treatment of standard financial services and Islamic finance products, the treatment of Islamic finance products is aligned with the treatment of similar standard financial services.

How quickly will refunds be released?
Refunds will be made after the receipt of the application and subject to verification checks, with a particular focus on avoiding fraud.

Will VAT be paid on imports?

VAT is due on the goods and services purchased from abroad.

In case the recipient in the State is a registered person with the Federal Tax Authority for VAT purposes, VAT would be due on that import using a reverse charge mechanism.

In case the recipient in the State is a non-registered person for VAT purposes, VAT would need to be paid before the goods are released to the person.

Will the goods exempt from customs duties also be exempt from VAT?
No. Imported goods may be exempt from customs duties but still be subject to VAT.

Will there be a profit margin scheme?
To avoid double taxation where second hand goods are acquired by a registered person from an unregistered person for the purpose of resale, the VAT-registered person will be able to account for VAT on sales of second hand goods with reference to the difference between the purchase price of the goods and the sale price of the goods (that is, the profit margin). The VAT which must be accounted for by the registered person will be included in the profit margin. Further details of the conditions to be met in order to apply this mechanism can be found in the Executive Regulations of the Federal Decree-Law No.(8) of 2017 on Value Added Tax.

What sectors will be zero rated?

VAT will be charged at 0% in respect of the following main categories of supplies:

Exports of goods and services to outside the GCC;
International transportation, and related supplies;
Supplies of certain sea, air and land means of transport (such as aircraft and ships);
Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
Newly constructed residential properties, that are supplied for the first time within 3 years of their construction;
Supply of certain education services, and supply of relevant goods and services;
Supply of certain healthcare services, and supply of relevant goods and services.

What are the categories of exempt supplies?

The following categories of supplies will be exempt from VAT:

The supply of some financial services;
Residential properties (excluding the first supply of newly constructed residential property which qualifies for the zero-rating treatment);
Bare land; and
Local passenger transport.

If you need to know more info then please refer FTA website.

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February 3, 2022
How to file UAE value added tax (‘VAT’) returns?
For submitting vat returns please read instructions below to simplify your work flow:

This user instructions guide will help you understand the key steps to file a VAT Return online through the eServices portal. For each Tax Period, a Taxable Person will be required to submit a VAT
Return which contains details regarding the supplies made or received by the Taxable Person.

Main Points to be noted while return preparation:
1. The standard Tax Period shall be a period of three calendar months ending on the
  date that the FTA determines.
2. The FTA may, at its discretion, assign a different Tax Period other than the standard one, to a certain group of Taxable Persons.
3. A Tax Return must be received by the FTA no later than the 28th day following the
  end of the Tax Period concerned or by such other date as directed by the FTA. Where
  a payment is due to the FTA, it must be received by the FTA by the same deadline.
Filing VAT Returns:

For each Tax Period, the Taxable Person shall report details in relation to sales and
other outputs as well as purchases and other inputs. For details please refer to the VAT
Returns full user guide. (You need to fill the details in prescribed format provided by FTA)

Steps to complete the process of submitting a VAT Return Form
> First step
Login to the FTA eServices portal and go to the ‘VAT’ tab whereby you will be able
to access your VAT Returns. From this screen you should click on the option to open
your VAT Return.
> Second step
Complete the Form: Fill in the following details: (These points are included in second step)
1. The sales and all other outputs as well as on expenses and all other inputs as
follows:
# the net amounts excluding VAT; and
#the VAT amount;

2. Based on your Payable Tax for the Tax Period proceed to a payment of any
payable tax to the FTA or request (if you wish) a VAT refund; and

3. Provide the additional reporting requirements in relation to the use of the Profit
Margin Scheme during the relevant Tax Period.

>Third Step
Submit the Form: Ensure all the details must be verified as per FTA Guidelines.
carefully review all of the information entered on the form after completing all mandatory
fields and confirming the declaration. Once you confirm that all of the information included
in the VAT Return is correct, click on the Submit button.

>Fourth Step
Pay the VAT Tax due (if applicable) through “My Payments” tab. Ensure payment
deadlines are met.

Here you go your, Your returns Filed.

If you have any doubt then refer FTA website for more details.

Hope this will help you to understand VAT submission in simple steps.

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February 3, 2022
What is Tax Group (VAT) & What are Implications – All Basic Info
Tax grouping for VAT purposes is an administrative easement available to businesses
and a revenue protection measure for government:
 Creating a tax group has the effect of registering a single taxable person.
 A tax group is issued one VAT Tax Registration Number (TRN) for use by all
group members, and only one tax return is required for all group members.
 Transactions taking place within a tax group are generally disregarded for VAT
purposes, meaning that cash-flow or absolute VAT costs that might otherwise
be suffered by the businesses concerned are eliminated. Moreover, revenue
risks that might otherwise arise on significant intra-group transactions are also
eliminated.
Strict qualifying criteria must be applied to limit the use of the measure to those for
which it is designed i.e. it is an administrative simplification measure, not one designed
to enable tax avoidance at any level.
Purpose of this document
This document contains more detailed guidance for businesses interested in forming
a tax group, adding members to or removing members from an existing tax group, and
disbanding a tax group.

Who should read this ?
This document should be read by all persons seeking to understand whether or not
they are eligible to form a tax group, how to amend a tax group, and how to disband a
tax group. It should also be read by those who are part of a tax group so as to
understand their associated obligations.

Implications of grouping for VAT purposes

The effect of a tax group registration is that the members of the tax group are treated
as a single taxable person for VAT purposes. This means that:
 Supplies made between members of the tax group will be disregarded for VAT
purposes and therefore no VAT is chargeable on intra-group transactions;
 Only one VAT Tax Registration Number is issued for use by the group;
 The tax group submits only one tax return which summarises all supplies and
purchases made by group members over the VAT period concerned; and
 One member of the tax group will be appointed as its ‘representative member’.
All of the VAT obligations of the tax group, and all supplies made and received
by it, are deemed to be carried out in the name of the representative member.

Important note to be considered: the members of a tax group are jointly and severally liable
for any and all VAT debts and other such obligations of the group for the period during which
they were members. That means that even when a business has left a tax group, it remains
liable for the period of membership.

Eligibility to form a tax group
Subject to certain criteria being fulfilled, two or more legal persons may apply to form
a tax group. Details of each of the criteria that must be fulfilled by each of the members
of a tax group are set out below.
Business criteria
Each member must be carrying on a business. Broadly, a business is defined as any
activity carried on in any place (i.e. in the UAE or elsewhere) regularly (i.e. the activity
is not a one-off event) and independently (i.e. by a business, not its employees).
Generally, this means that a person that is not in business cannot form or join a tax
group.
Legal person criteria
Each member of a tax group must be a legal person (i.e. they must be a company,
government entity, or similar).
A legal person is an entity that has legal personality formed under the relevant laws
that is capable of entering into contracts in its own name. Typically, for example, a
company would be a legal person, as it is formed under companies law and can enter
into contracts. However, it is also possible for other entities to be created which are
similar (e.g. the companies formed by Decree under local laws in the Emirates).
A natural person (i.e. an individual) cannot create or join a tax group.

Establishment criteria
Each member must be resident in the UAE, either by way of having its primary
business establishment or as a consequence of having a fixed establishment in the
country. A business establishment is usually the place where key management
decisions affecting a business are made. A fixed establishment is a place which
possesses the necessary human and technical resources sufficient to carry on a
business.
A foreign-owned subsidiary that has been established in the UAE can, under these
criteria, qualify to be included in a tax group. A branch of a foreign-owned company
can also qualify under the fixed establishment test.
Related parties (and control) criteria
Each member must be related to the other to a sufficient extent. In this context,
“related” is taken to mean they share economic, financial and organisational ties
(either in law, shareholding or voting rights). One person must be able to control the
members.

Economic ties are indicated where, for example, there is a common interest in the
proceeds of the business. Financial ties are indicated where, for example, one part of
the business benefits the other. Organisational ties are indicated where, for example,
you share common premises.

Noticeable Point: common sponsorship of two or more Legal Persons will, generally, give
rise to the possibility of tax grouping but only where the control criteria can also be met
in actuality. Where the sponsorship agreement is overridden by another agreement whereby
the control criteria cannot, in actuality, be satisfied, tax grouping will not be possible.

Government Entities
Additional criteria for Government Entities
There are certain additional criteria which apply to Government Entities in respect of
forming a tax group:
 Designated Government Bodies may only form or join a tax group with other
Designated Government Bodies;
 Designated Government Bodies may not form or join a tax group with other
Government Bodies (i.e. those Government Bodies which are not Designated);
and
 Government Bodies that are not Designated and are registerable in their own
right can form or join a tax group with other legal entities, subject to the usual
tax grouping rules.
Forming and amending a tax group
Forming a tax group
Once it has been determined that the prospective members are eligible to form or join
a tax group, it is also necessary to establish whether that group is required to or eligible
to register for VAT purposes. The VAT registration requirements can be satisfied
where either –
 one prospective member alone satisfies the relevant registration requirements;
or
 if taken together, the total value of supplies made by or expenses (which are
subject to VAT), incurred by the prospective members satisfy the relevant
registration requirements.
The flowchart in Appendix A will assist to determine whether the tax group eligibility
and registration tests have been met and an application can be submitted.
An application to form a tax group will, subject to the necessary checks being
satisfied, be treated as effective on either –
 the first day of the tax period following the tax period in which the application is
received; or
 any other date as determined by the Federal Tax Authority (FTA).
Applying to form a tax group
As part of the registration process it will be necessary for you to decide who you wish
to appoint as the representative member of the tax group. The representative member
can be any one of the members of the proposed group. The tax returns of the group
are submitted in the name of the representative member.
Important: notwithstanding the appointment of a representative member, the
members of a tax group are jointly and severally liable for all taxes and penalties due
from the representative member.

CREDIT: FTA WEBSITE

Citations: FTA Website.

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February 3, 2022
VAT(Identification of Designated Zones) – UAE
VAT treatment of Free Zones

VAT is a general consumption tax imposed on most supplies of goods and services in the UAE. By default, it is chargeable on supplies of goods and services throughout the territorial area of the UAE. This territorial area will also include those areas currently defined as both fenced and non-fenced Free Zones. For VAT purposes, both fenced and unfenced Free Zones are considered to be within the territorial scope of the UAE – and therefore subject to the normal UAE VAT rules – unless they fulfil the criteria to be treated as a Designated Zone as defined by the Federal Decree-Law on VAT1 and Executive Regulations2. Those Free Zones which are Designated Zones are treated as being outside of the territory of the UAE for VAT purposes for specific supplies of goods. In addition, there are special VAT rules in respect of VAT treatment of certain supplies made within Designated Zones. The effect of these rules is that certain supplies of goods made within Designated Zones are not be subject to UAE VAT. In contrast, supplies of services made within Designated Zones are treated in the same way as supplies of services in the rest of the UAE. Important: Free Zones meeting the criteria have been specifically identified by way of a Cabinet Decision as Designated Zones. Where a Free Zone is not a Designated Zone, it is treated like any other part of the UAE.

Identification of a Designated Zone A Designated Zone is an area specified by a Cabinet Decision as being a “Designated Zone” 3. Free Zones listed by the Cabinet Decision as being a Designated Zone can be found under the Legislation tab on the FTA website (www.tax.gov.ae). Although an area might be identified as a Designated Zone, it is not automatically treated as being outside the UAE for VAT purposes. There are several main criteria4

which must be met in order for a Designated Zone to be treated as outside the UAE for VAT purposes. These are as follows: 1. The Designated Zone must be a specific fenced geographic area. 2. The Designated Zone must have security measures and Customs controls in place to monitor the entry and exit of individuals and movement of goods to and from the Designated Zone. 3. The Designated Zone must have internal procedures regarding the method of keeping, storing and processing of goods within the Designated Zone. 4. The operator of the Designated Zone must comply with the procedures set out by the FTA. This means that where a Designated Zone has areas that meet the above requirements, and areas that do not meet the requirements, it will be treated as being outside the UAE only to the extent that the requirements are met. In addition, should a Designated Zone change the manner of its operation or no longer meet any of the conditions imposed on it which led to it being specified as a Designated Zone by way of the Cabinet Decision, it shall be treated as though it is located within the territory of the UAE5. Important: Only where a Designated Zone meets all the above tests it can be treated as outside the UAE for VAT purposes.

Entities within a Designated Zone Those businesses which are established, registered or which have a place of residence within the Designated Zone are deemed to have a place of residence in the UAE for VAT purposes6. The effect of this is that where a business is operating in a Designated Zone, it itself will be onshore for VAT purposes, even though some of its supplies of goods may be outside the scope of UAE VAT.

VAT registration Any person carrying on a business activity in the UAE and making taxable supplies in excess of the mandatory VAT registration threshold (i.e. a taxable person) must apply to be registered for VAT purposes.

Any other person that is making taxable supplies or incurring expenses (which are subject to VAT), in excess of the voluntary VAT registration threshold may apply to register for VAT purposes. Important: Designated Zone businesses are considered to be established ‘onshore’ in the UAE for VAT purposes. This means that they have the same obligations as non-Designated Zone businesses and have to register, report and account for VAT under the normal rules. It also means they can join a tax group (VAT group) provided they meet the required conditions.

————————————————————————————————————————-
1 Federal Decree-Law No. (8) of 2017 on Value Added Tax, hereafter ‘the Law’. 2 Cabinet Decision No. (52) on the Executive Regulations of Federal Decree-Law No.(8) of 2017 on Value Added Tax, hereafter the ‘Executive Regulations’. 3 Article 1, Executive Regulations: any area specified by a decision of the Cabinet upon the recommendation of the Minister, as a Designated Zone for the purpose of the Decree-Law. 4 Article 51(1), Executive Regulation.

Source: tax.gov.ae

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October 14, 2021