While the new legislation is expected to bring a wave of changes to how businesses operate financially, market leaders and analysts have forecast the UAE’s corporate tax scheme to generate long-term, positive results for the nation’s economy, regulatory infrastructure and reputation as a global business hub.
As we try to gauge the impact of corporate tax in the country, especially on startups and SMEs, we sit down with people who work closely with the UAE’s entrepreneurial community, Paul Bryson, Managing Director at Virtuzone, and Maryia Vinahradava, Head of Corporate Services at Virtuzone.
Why has the UAE introduced corporate tax and how will it impact SMEs and the UAE’s economic trajectory?
Paul: The primary goal of the UAE government in introducing corporate tax is to further diversify the economy and further lessen its reliance on traditional markets such as oil and gas.
The latest government reports indicate the country’s non-oil sectors account for 70 percent of its total GDP and that it reached a value of AED312 billion in Q1 of 2023. The corporate tax scheme can build on this momentum, and further shift the economy’s focus to its knowledge and innovation sectors.
Maryia: To add to that, corporate tax will not just benefit the country’s overall economy, but the SMEs as well. Under the new corporate tax law, the SMEs will have minimal reporting obligations – they’re required to register for corporate tax, maintain accounting records, and submit an annual tax report to the Federal Tax Authority (FTA).
This streamlined system not only simplifies their operations but also enhances their appeal to potential investors, both domestically and abroad. Additionally, should these businesses contemplate a future sale, the presence of a robust financial reporting framework will undoubtedly be advantageous for them.
Will corporate tax affect the people whose primary goal for setting up a business is to secure visas? What are their alternative options?
Paul: This market segment is unlikely to be affected, as they will fall under the corporate tax’s zero revenue category. However, like all other businesses in the UAE, they will still need to register for corporate tax and complete their annual filing to prove that they do not have to pay tax.
Maryia: There is also a myriad of options available now for those who want to secure a UAE visa without setting up a company. For instance, one can secure a 10-year golden visa by depositing AED2 million ($544,507) in a bank. Alternatively, purchasing a property valued at over AED2 million offers the same privilege.
Even those with existing properties can become eligible for the UAE Golden Visa, provided that their asset’s valuation exceeds AED2 million. There are also other categories they can qualify for under the UAE’s Golden Visa programme, such as for qualified professionals and managers, but these are the most popular routes we see our clients take.
What is the general sentiment of the SMEs and startups, or what are the common questions you get about corporate tax?
Maryia: “How can I optimise my tax situation? What steps should we take? Is this something I can overlook or do I need to take action? Am I eligible for exemptions? Is my business activity exempt?” From these inquiries, it’s evident that many business owners, SMEs, and entrepreneurs are still navigating the intricacies of the new tax law and seeking clarity on their obligations.
Businesses that earn profits above AED375,000 will be subject to a 9 percent corporate tax rate, whereas those with profits below that threshold will be subject to a zero percent tax rate. However, as we keep emphasising, whether they need to pay or if they are exempt, they will still need to register, keep accounting records and submit an annual filing.
Many small businesses are also clueless about the Small Business Relief, which can grant exemption to businesses if their total revenue is below or equal to AED3 million for the relevant tax period. This tax relief is available until 2026.
Paul: The high threshold also works for the benefit of small businesses. In other countries, businesses can be subjected to tax upon reaching a revenue threshold of $8,000 to $12,000. In comparison, the threshold for UAE corporate tax is a little over $100,000, so it is favourable to new and smaller companies.
Could you outline the key legal and compliance obligations for businesses in the UAE, their purposes and how can SMEs ensure full compliance with these obligations?
Maryia: Every business in the UAE, regardless of their jurisdiction, should take steps regarding Value Added Tax (VAT) – and this is completely separate from corporate tax. VAT is imposed on businesses with local operations, but even businesses that operate overseas should take steps to ensure compliance with VAT.
Interestingly, we started registering businesses for corporate tax and encountered that many businesses didn’t take any steps regarding VAT and ended up with fines for late registration.
Another major compliance obligation they have to be aware of is goAML, which applies to real estate agencies, law firms, accounting firms, and companies that trade gold, diamonds, precious metals, precious stones, and jewellery.
They need to complete their goAML registration, appoint a compliance officer, create AML policies & KYC framework, submit compliance reports and run checks on every client. If they fail to comply with these requirements, their license could be suspended and they can face fines ranging from AED50,000 to AED5 million.
The purpose of the UAE’s AML policies is to combat money laundering and ensure that companies dealing with significant financial transactions and sensitive information can verify that their sources of funds or clients are legal.
Economic Substance Regulations (ESR) is another regulatory requirement that applies to certain businesses. ESR is a compliance measure designed to ensure that all UAE mainland and free zone companies maintain adequate economic presence in the UAE. Businesses that fall under ESR must submit a notification and a report at the end of the year.
Given the dynamic regulatory environment in the UAE, how can businesses ensure compliance while staying agile enough to explore new market ventures?
Paul: The UAE’s compliance and regulatory landscape is constantly evolving to meet worldwide best practices and benchmarks for excellence, transparency and sustainability. Given the plethora of information available online, however, businesses will need expert guidance in finding out what policies apply to them and determining the actions they must take.
When it comes to structuring your company here in the UAE, you can have a few options depending on your business needs and objectives. However, when it comes to corporate tax and regulatory compliance, it is black and white – there is a clear set of guidelines on what you need to do and should not do.
As the largest corporate service provider in the country, we seek to educate and guide our clients through these complicated processes, enable them to comply with ease, and seamlessly continue their business operations.
Whether it is corporate tax, VAT or any new regulatory requirement, we are committed to guiding businesses in adapting to new processes, simplifying the transition process for them, and making compliance as frictionless as possible.
