Taxable residents would be subject to a corporate income tax (CT) on their worldwide income, while non-residents would be subject to a CT on the taxable income of their permanent establishment (PE) in the United Arab Emirates (UAE); and income received in the UAE. The law proposed above contains a very general provision, but there are some exceptions, which are discussed as follows:
There are generally two types of goods in the store. Some items that affect the business in the long term, such as machinery, are referred to as capital goods, while some items that affect the business in the short term, such as inventory, are referred to as revenue items. There are two types of gain and loss on these items. One is realized gain or loss, meaning a gain or loss is realized when the item is sold, and the other is unrealized gain or loss, meaning the change in value of items prior to sale.
The public consultation document suggested that capital goods gain or loss should be taken into account when calculating taxable gain or loss. However, for items of income, the unrealized gain or loss is counted to arrive at the taxable gain or loss. Investing in stocks falls under capital goods, so gains or losses on stocks (gain or loss from the sale of stocks) are only included in the calculation of taxable gain or loss. As discussed in our previous article, Paragraph 3.5 of the Public Consultative Documents on UAE CT clearly states that “Employment income and other personal income earned by UAE and foreign persons such as dividends, rental income from real estate investments in the UAE and other capital gains not fall under the proposed UAE CT regimen.
Given the above provision of the proposed public consultation document, dividend income and capital gains received by individual shareholders would not fall within the scope of corporate income tax. The person may be in the UAE or outside the UAE, but CT does not apply to such income.
When the UAE is a corporate shareholder, all domestic dividends from UAE corporations are exempt, including dividends paid by free zone individuals who benefit from the 0 percent CT rule. UAE corporate shareholders are exempt from tax on capital gains received domestically from a mainland company if the company owns at least 5 per cent of the shares in the subsidiary. Capital gains on the disposal of shares in a free zone person are exempt from CT if the free zone person is a holding company and all of its income derives from interests in subsidiaries that meet the conditions of the participation exemption (5 percent interest) ) )
Dividends paid by foreign companies and capital gains from the sale of shares in foreign companies are also exempt from CT provided the UAE shareholder owns at least 5 per cent of the shares in the subsidiary and the foreign subsidiary holds less than 9 per cent. CT or similar taxes to prevent changes in income in a subsidiary in a country with no or less tax.
For foreign shareholders, the treatment of domestic dividends paid and domestic capital gains received on sale of shares remains the same as above for shareholders of UAE companies. However, if the foreign shareholder earns foreign income, it would be outside the scope of the UAE’s CT regime.
The branch office is not a separate legal entity but an extension of the main entity. This means that a branch does not have the legal status of a company either in the UAE or outside of the UAE and the company is not required to keep separate books for branches. Transactions between the main company and the branches are not subject to tax.
If a company has a branch in the United Arab Emirates, its total income and expenses will be combined with those of the parent company and taxed accordingly. However, if the branch is located outside the UAE, UAE companies can either (i) apply for a foreign tax credit for taxes paid in the country of the foreign branch or (ii) an exemption for the profits of their foreign branch. claim can choose.
In the first option, the branch number is merged with the main company, taxed and the branch is credited with the taxes paid from the UAE. In the second option, the branch’s profits are not taxable in the UAE, but the branch must claim an irreversible exemption, which is only available if the branch’s profits are taxed in the UAE at nine percent or more. Companies with branches outside the UAE should make a rational decision regarding taxation of the branch(es) profits.
As the UAE is a major logistics hub and international travel hub, the proposed CT regime provides specific exemptions for the operation or leasing of aircraft or vessels (and associated equipment) used internationally by a non-resident. Earned income is required. Transportation is exempt from CT provided the UAE business has been granted equal tax treatment in the relevant foreign jurisdiction based on the principle of reciprocity. The law would give us more clarity about such earnings and international transportation.
The above is a taxpayer’s tax-exempt income, while some individuals are completely exempt from the proposed CT rule that we discussed in our previous articles.
Mahar Afzal is a Managing Partner at Kress Cooper Management Consultants. The above is not official, but the personal opinion of the author. If you have any questions/clarifications, please write to [email protected]
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