Everything About the UAE Corporate Tax Expenses and Loses

The UAE government has announced the implementation of corporation tax from 1st June 2023. The announcement of the UAE corporate tax has sparked interest among businesses and tax specialists. With this statement, the UAE will become the fourth GCC country to implement a federal corporate tax. The primary goal of introducing corporate tax is to strengthen the UAE's credibility as a global business hub. Moreover, the implementation of the corporation tax in the UAE contributes to meeting international requirements for tax transparency while avoiding harmful tax practices. It can be difficult for businesses to grasp the effects of corporate tax on their operations and how to comply with them. So, it is important to seek help from the best corporate tax consultants in Dubai, UAE. In this blog, we are going to discuss the tax expenses and losses that come under UAE corporate tax.

Tax Losses Under UAE Corporate Tax

In the proposed UAE corporate tax law, the treatment of expenses is outlined. Business comes with uncertainty; it will be on great profit for one year and on loss the other year. This is more common during the start-up stage of a business and may occur owing to market conditions. It would be unfair to the business if they paid taxes when they made profits but lost money when they suffer losses.

Under the proposed corporate tax law, UAE businesses that suffer tax losses in the business in certain years can offset such losses against future taxable income. However, the maximum loss that can be set off in any period is 75% of the taxable income of the next year.

Carry Forward Losses

Carry forward of losses is a provision that allows a taxpayer to carry forward tax losses incurred in one year to future years and offset them against future profits to reduce the future year's tax liability. Under the proposed law, a company can carry forward the losses of a financial year indefinitely. However, to claim such a benefit, 50% of the company's shareholders must remain unchanged from the start of the period in which the company incurred losses until the end of the period in which a loss is incurred. By consulting with professional tax advisers, one can gain a better understanding of corporate tax losses in Dubai, UAE.

Limitations on Carrying Forward a Tax Loss

Under the proposed law, the following losses cannot be offset or carried forward to a future period: -

• Losses incurred prior to the effective date of corporate tax (in relation to that particular transaction);
• Losses incurred before an individual became a taxpayer for UAE corporate tax purposes
• Losses from income-generating activities or assets exempt from UAE corporate tax
• Losses suffered by a free zone person that are not attributable to a PE on the UAE mainland

Non-Deductible Tax Expenses

The UAE corporate tax regime has classified some forms of expenses as non-deductible. Tax advisors can advise businesses on non-deductible expenses. To get a clear understanding of non-deductible corporate tax expenses in Dubai, UAE, consider the following:

• Related party payments paid to a Free Zone Person who is taxed at 0% on income received are not deductible for corporate tax purposes. However, if the payment is ascribed to a mainland branch of the Free Zone Person, the connected party may claim a deduction.
• Businesses will be able to deduct up to 50% of the costs associated with engaging clients, shareholders, suppliers, and other business partners, in recognition of the fact that these costs frequently also contain non-business or personal components.
• Deductions are not allowed for certain other specific expenses, such as administrative fines, recoverable VAT, and donations to an entity that is not a recognized charity or public benefit body.

Conclusion

It is important for businesses to seek help from corporate tax consultants in understanding tax losses and tax expenses under UAE corporate tax regulations. Leading corporate tax consultants in Dubai, UAE, like Reyson Badger, are highly knowledgeable in the area of taxation and can help businesses to understand the detailed rules and regulations of taxation in the UAE. Corporate tax consultants are also able to provide assistance in ensuring that businesses are compliant with all applicable tax regulations. Ultimately, seeking assistance from corporate tax consultants can save businesses time, money, and stress.