We are delighted to announce that we have signed a Xero “re-seller” agreement with effect from the 1st March 2024.

This agreement will allow us the opportunity to offer new accounting services clients a substantial discount on their first year Xero subscription.

This offer is only available to clients signing up to our monthly outsourced accounting package and does not apply to existing clients.

To learn how your business could benefit from savings of up to 35% on Xero subscription contact us today info@uaebusinesssolution.net

In advance of the final publication of the corporation tax law in the UAE a consultation document has been issued. The document contains information on the proposed United Arab Emirates (UAE) Corporate Tax regime and is released for the purposes of obtaining input from interested parties. It does not reflect the final view of the UAE Government, and is not intended to comprehensively address all possible aspects of the proposed UAE Corporate Tax regime.

The public consultation document is released in advance of relevant legislation being finalised and promulgated, and is released on the basis that it is without prejudice to the final UAE Corporate Tax regime. As such, the consultation document should not be used or relied upon to make individual or business decisions as it does not represent the final legislation.

In this article we explore some of the key points raised to give readers an early indication of what to expect once the law is published.

On 31 January 2022, the Ministry of Finance announced that the United Arab Emirates (UAE) will introduce a federal Corporate Tax (CT) on business profits effective for financial years starting on or after 1 June 2023. Since the announcement, work has continued on the finalisation of the UAE CT regime to ensure that it incorporates best practices globally and minimises the compliance burden for businesses.

Free Zones

In line with the original intention and purpose of Free Zones, a Free Zone Person can benefit from a 0% CT rate on income earned from transactions with businesses located outside of the UAE, or from trading with businesses located in the same of any other Free Zone. The 0% CT rate may also apply to income from certain regulated financial services directed at foreign markets.

Where a Free Zone Person transacts with mainland UAE but does not have a mainland branch, the Free Zone Person can continue to benefit from the 0% CT rate if its income from mainland UAE is limited to ‘passive’ income. This would include interest and royalties, and dividends and capital gains from owning shares in mainland UAE companies

To prevent Free Zone businesses from gaining an unfair competitive advantage compared to businesses established in mainland UAE, any other mainland sourced income will disqualify a Free Zone Person from the 0% CT regime in respect of all their income.

Calculation of taxable income

To reduce complexity and compliance costs, the UAE CT regime proposes to use the accounting net profit (or loss) as stated in the financial statements of a business as the starting point for determining their taxable income.

Using accounting standards provides for a common definition of income, which reduces compliance costs and provides a base which follows international standards. Aligning the calculation of taxable income to accounting profits (where possible and appropriate) limits book-tax differences and prevents businesses from having to maintain two sets of records: one for financial reporting purposes and the other for CT purposes.

The financial statements should be prepared using accounting standards and principles that are acceptable in the UAE, and businesses will use their financial accounting period as their (annual) tax period. Where a business does not have a financial accounting period, their default tax period will be the Gregorian calendar year.

Although International Financial Reporting Standards are commonly used in the UAE, consideration is being given to allowing alternative financial reporting standards and mechanisms for determining taxable income to accommodate and reduce the compliance costs for certain taxpayers (e.g., startups and small businesses).

Non-deductible expenses

As discussed in section 3.8, related party payments made to a Free Zone Person that is taxed at 0% on receipt of the income will not be deductible for CT purposes. However, the related party will be allowed to claim a deduction if the payment is attributed to a mainland branch of the Free Zone Person.

Businesses will be allowed to deduct up to 50% of expenditure incurred to entertain customers, shareholders, suppliers and other business partners, to acknowledge that these types of expenses often also have non-business or personal element. 21

No deduction will be allowed for certain specific other expenses such as administrative penalties, recoverable VAT, and donations paid to an organisation that is not an approved charity or public benefit organisation.

Transfer pricing

This section sets out the proposed treatment under the UAE CT regime of transactions between related parties.

The UAE CT regime will have transfer pricing rules to ensure that the price of a transaction is not influenced by the relationship between the parties involved. In order to achieve this outcome, the UAE will apply the internationally recognised “arm’s length” principle to transactions and arrangements between related parties and with connected persons.

Transfer pricing

This section sets out the proposed treatment under the UAE CT regime of transactions between related parties.

The UAE CT regime will have transfer pricing rules to ensure that the price of a transaction is not influenced by the relationship between the parties involved. In order to achieve this outcome, the UAE will apply the internationally recognised “arm’s length” principle to transactions and arrangements between related parties and with connected persons.

Calculation of CT liability

This section sets out the proposed approach to calculating the CT payable by a business, and how such CT liability may be satisfied.

Applicable CT rates

CT will be charged on the annual taxable income of a business as follows: ● 0%, for taxable income not exceeding AED 375,000; and ● 9%, for taxable income exceeding AED 375,000; or

Withholding tax

Given the position of the UAE as a global financial centre and an international business hub, a 0% (zero percent) withholding tax will apply on domestic and cross-border payments made by UAE businesses.

The following income shall be subject to 0% withholding tax: ● UAE sourced income earned by a foreign company that is not attributable to a PE in the UAE of that foreign company; ● Mainland UAE sourced income earned by a Free Zone Person that benefits from the 0% CT regime, unless the income is attributable to a mainland branch of that Free Zone Person; and ● Dividends and other profit distributions made by a Free Zone Person that benefits from the 0% CT regime to a mainland UAE shareholder in the Free Zone Person. 28

Given the rate of withholding tax is proposed to be at 0%, UAE businesses will not be required to make any deductions from payments made, nor will there be an obligation to file withholding tax returns.

Filing, payment and refund

In order to keep the administrative burden on taxpayers to a minimum, a business will only need to prepare and file one tax return and other related supporting schedules with the FTA for each tax period. There will be no requirement for a business to file a provisional CT return and make advance payments of CT.

Each tax return and related supporting schedules will need to be submitted to the FTA within nine (9) months of the end of the relevant Tax Period. For additional documentary support that may need to be provided to the FTA, please refer to section 10.5.

Payments to settle a taxpayer’s CT liability for a Tax Period will need to be made within nine (9) months of the end of the relevant Tax Period. Where a taxpayer can demonstrate that a CT refund may be due, the taxpayer can apply to the FTA to request a refund.

Assessment

The UAE CT regime will be based on a self-assessment principle. This means that a business is responsible for ensuring that the tax return and any supporting schedules submitted to the FTA are correct, complete and comply with the UAE CT law.

To ensure the integrity of the CT regime, the FTA may review a CT return filed and may issue an assessment within the timeframe prescribed in the Tax Procedures Law.

A taxpayer may challenge an amended assessment issued by the FTA via the processes and procedures outlined in the Tax Procedures Law.

Documentation requirements

A business will be required to maintain financial and other records that explain the information contained within the CT return and other documents submitted to the FTA. Certain exempted persons will also be required to maintain records to allow the FTA to ascertain the person’s exempt status.

Whether the financial statements of a business are required to be audited by an accredited audit firm is and will continue to be determined by applicable company laws and regulations. However, the UAE CT regime will require a Free Zone Person to have audited financial statements if it wants to benefit from the 0% CT regime.

There is a lot to unpack from the selected points we have chosen to focus on and as mentioned this is not the final law. In advance of the UAE CT law being published businesses should start looking at their accounting systems, documentation storage and business structure.

Advice should be sought if the business process review is deemed too daunting at this stage.

UBS Consultants FZE

Against the backdrop of the Covid pandemic, and the economic challenges that resulted, we are delighted to be able to announce that we have achieved Xero gold status.

This change in status reflects our on-going commitment to cloud accounting and specifically our strategic partnership with Xero.

We dedicate this achievement to all our employees who have continued to display the highest levels of professionalism and service through difficult times.

During these difficult times for businesses and individuals alike we understand there is a need to try and support UAE SME’s (small businesses) wherever possible.

The current (and possibly on-going) requirement for remote working, and contactless services, lends itself perfectly to cloud accounting and all our accounting deliverables are contactless and digitized.

With this in mind we are running a promotion throughout the month of May 2020 to provide 1 months FREE accounting for any small business signing up for our services.

To qualify you need to meet these simple criteria requirements:

• Be a startup business

• Be an existing SME business

• Sign up for our monthly outsourced accounting services - 12 month contract

We can take over your existing accounting system or set you up with a cloud accounting system with integrated document collection and management to facilitate contactless accounting. We can also provide initial system training via Zoom calls.

Please feel free to contact us to discuss how we can migrate your accounting system to contactless today and get your first month completely FREE.

steve@uaebusinesssolutions.com

As an outsourced accounting provider, we process thousands of supplier bills and employee expense receipts on a monthly basis.  It is clear from the number of non-compliant bills rejected by our accounts payable team that companies across the UAE have still not got to grips properly with VAT even though we are into the third year since implementation.

There have been several FTA clarifications issued since January 2018 which may have been missed or not acted on by VAT registered companies.  As we are in unprecedented times, and many businesses have been forced to temporarily close, we thought we would- take this opportunity to refresh some of the basic requirements for FTA compliance and to touch on the clarifications issued.  Now would be a good time to perform an audit to ensure you are compliant with the VAT Law.

Sales invoices

There are two types of sales invoice allowable under the VAT Law:

·         Simple invoice

·         Detailed invoice

A simple invoice can be issued for customers who are not VAT registered or where the amount is less than 10,000 AED. 

A detailed invoice is issued when the amount is more than 10,000 AED in value.

Contents of UAE VAT Tax Invoice

1. Simple VAT Invoice

·         A simple VAT Invoice must contain the words “Tax Invoice” in a prominent place.

·         It must contain the details of the supplier. Name, Address and Tax Registration Number (VAT Number).

·         In addition to the above, it must contain, Date of issue of the tax invoice.

·         The complete description of goods supplied must be included.

·         Apart from that, the most important thing a simple VAT invoice must have is the Total Amount Payable and Total VAT Chargeable.

2. Detailed VAT Invoice

In addition to the above details that are in a simple tax invoice, a detailed VAT Invoice will consist of the following details:

·         Name, address, and TRN of the recipient.

·         A unique invoice number

·         Date of Supply, if it is different from the date of issue.

·         Price per unit, the supplied quantity/volume, rate of tax and the payable amount in AED.

·         Discount, if applicable.

·         Payable Gross value of Invoice in AED.

·         Payable Tax Amount in AED.

·         Statement relating to Reverse Charge, if applicable.

Please note for the detailed invoice the VAT per line must be shown as well as the total VAT due.

There have been several FTA Public Clarifications issued since VAT was introduced in January 2018.  We have outlined 3 of the most important in out opinion.

VAT Reclaim on Entertainment

VAT incurred on any costs which are used for a genuine business purpose, or which are incidental to a business purpose e.g. food and drink provided during a business meeting, shall be recoverable (subject to normal VAT recovery rules). However, where the hospitality provided becomes an end in itself and could be construed as the purpose for attending an event, such costs will be considered to be entertainment in nature and the VAT incurred shall not be recoverable.

Further clarification is available in FTA public clarification number VATP005

Timeframe for Recovering VAT

Recoverable input tax must be recovered in the first tax period when the two conditions below are satisfied (referring Article 55(1) of the VAT Law):

·        The taxable person has received a tax invoice; and

·         He intends to pay the consideration for the supply before the expiration of six months after the agreed date for the payment of the supply.

When the taxable person receives a tax invoice, the input tax can only be recovered in the tax period when an intention to pay is formed within a prescribed period. Some businesses have internal approval processes that must be completed before payment of an invoice.  VATP017 clarifies that the taxable person’s intention to make the payment only crystallizes when the internal invoice approval process is complete and an intention to make payment within the prescribed period is formed.

Therefore, before a taxable person can recover recoverable input tax, he must hold a tax invoice and satisfy the condition that he has formed an intention to pay within the prescribed period of time.

VATP017 also clarifies the position where the taxable person has recovered the input tax on the tax return but has failed to make the payment before the expiration of six months after the agreed date of payment.  The taxable person should reduce his input tax by the unpaid amount in the tax period that corresponds to the expiry of the six-month period.  This input tax will be recoverable once the taxable person has made the payment.

Disbursements and Reimbursements

VATP013 on disbursements and reimbursements

VATP013 discusses transactions where a person incurs expenses and then recovers these expenses from another party and sets out the criteria for determining if the recovery is a ‘disbursement’ (out of scope of VAT) or ‘reimbursement’ (within scope of VAT). These are differentiated as follows:

Disbursement: the recovery of a payment made as an agent on behalf of another person, with the supply taking place directly between the supplier and the other person.

·         Example: Company A makes a payment to a supplier on behalf of their client Company B, and then invoices Company B for the payment. The supply was made directly from the supplier to Company B, the supplier invoiced Company B, and Company B authorized Company A to make the payment on its behalf. The expenses that Company A recovers from Company B will be out of scope of VAT.

Reimbursement: the recovery of expenses incurred as a principal (i.e. the supply took place directly between the supplier and the person recovering the cost).

·         Example: Company A enters a contract with Company B to provide Company B with marketing services. Company A incurs costs in its own name while providing these services and then recovers these amounts from Company B as per the existing terms of their contract. The expenses that Company A recovers from Company B will follow the VAT treatment of the main supply.

House Keeping

We have recently been involved in FTA audits and there are some points to outline here to ensure you are FTA compliant:

·         Receipts and bills should be in the prescribed formats outlined in sections 1 and 2

·         Receipts and bills should be legible – If the TRN, VAT amounts, etc are not clear these will be disregarded for VAT reclamation and the input tax previously claimed will have to reimbursed to the FTA

The FTA allows full digital record keeping and we would suggest digitizing all your VAT records to avoid any issues in the event of an FTA audit.  Paper records fade, digital records do not!

There are several cloud accounting systems available and our personal choice is Xero.  You can also adopt Dropbox to store digital records. 

Checklist

Currently when staff perhaps have more time on their hands due to the Covid-19 crisis an internal VAT audit of systems and compliance would seem a very worthwhile exercise.  Our basic checklist for this is:

·         Ensure your accounting system sales invoice setups are compliant for producing simple and detailed tax invoices.

·         Digitize your VAT records.

·         Review all FTA Public Clarifications issued.  These are all available on the FTA website - https://www.tax.gov.ae/en/vat/guides-listing

·         Review supplier bills/receipts to ensure they are FTA compliant.  Ensure your staff understand what is and what is not compliant so they can reject any bills that do not meet the criteria outlined.

Author

Steve Armitage is the founder and Managing Partner of UBS Consultants an outsourced accounts provider based in Dubai.

As we are now deeply embroiled in the Covid-19 epidemic, and it starts to impact on business, and the ability to keep liquidity positive, there are a number of action(s) business owners can take (if not already actioned) and below we have outlined these in simple terms.

Simple Action Plan

·         Review all essential and non-essential costs

·         Review staffing requirements – look at unpaid leave options or temporary wage reductions

·         Prepare a detailed cash flow (3-6 months)

·         Approach your landlord for a “payment holiday” or restructuring of payments

·         Approach all suppliers for a “payment holiday”

·         Close your office and have staff work from home (if possible) to reduce daily costs

·         Approach your bank for “payment holidays” on loan/credit card repayments

·         Subscribe to Gulf News or Khaleej Times “alerts” to stay up to date with the latest Government circulars impacting your business

Confirmed UAE Virus Relief Benefits

·         Banks are reducing or waiving charges for the next few month(s) – this varies by bank so check with your account manager

·         Banks are offering payment holidays for loans – again this varies by bank

·         10% reduction on DEWA bills for the next 3 months

·         Reduced licencing and admin costs across the various licensing authorities – check with your licence provider

UBS Consultants Business Continuity

As an outsourced accounting service provider our staff are all remotely based and as a result there is no discontinuation of our services. 

Xero cloud accounting, Dropbox and Monday.Com tools allow us to keep servicing clients at this crucial time for everyone. 

UBS Consultants Employee Safety

UBS staff are fully equipped to seamlessly work from home. Work travel has been completely restricted for the time being.

All employees have been provided with gloves for handling of paper and documents in line with the Government directives.

UBS Consultants Additional Services

For existing, and new clients, we are offering additional cash flow and restructuring services/advice currently.  Please feel free to reach out to us if you need these additional services or any of our normal outsourced accounting services.  steve@uaebusinesssolutions.com

As part of our on-going commitment to improving the customer experience UBS Consultants is delighted to announce the attainment of ISO9001:2015 quality management system accreditation.