UAE Corporate Tax: Companies need to exercise caution with their "branch" licenses

MoMansour - | UAE

The specifics of a company's branch licenses will be especially crucial. Businesses in the UAE should register their corporate taxes with 100% transparency as a general guideline. in particular with regard to the licenses they possess.

While the world celebrates the start of a new year, companies that follow the January to December fiscal year will move into the corporation tax era. Though their company tax returns aren't due until September 2025, there are a few things that are worth quickly going over.

The tax registration will serve as proof that the people or businesses are legitimate taxpayers. The authorities promote prompt registration, and the online registration process is easy to complete. The authorities would then have enough time to examine the applications and offer comments.

The business tax registration uses Emaratax technology to duplicate the data previously supplied for Value Added Tax (VAT). In light of my experience, a prompt application will assist in locating the gaps in VAT registrations and related data that have previously gone undetected. Before the business tax registration is accepted, these holes must be filled, which could take some time.

Categories of licenses

The owners and their auditors may also be taken aback by the licensing categories that businesses have been operating under for a long time. A UAE company's branches are merely an extension of its primary head office license, particularly when they are located in different emirates.

It is not necessary for these branches to have their own registration. Companies routinely change their names to include "branch" in order to secure more licenses. Licenses that fall under a category other than "branch" and are linked to the primary license run the danger of being regarded as distinct businesses.

Businesses operating under various sole establishment or civil company licenses across emirates, particularly under distinct VAT registrations, would confront a mirror problem.

If a firm, like a salon or grocery store, fails to accurately identify the category of its permits, it may also lose its eligibility for small business relief (SBR)—especially if the same management, financial resources, and bank account are used.

Is the corporation planning to close in 2024?

It appears that business owners are reluctant to file for corporation tax. It is frequently funny when someone resists an eventuality. Owners who intend to dissolve their businesses in 2024 appear to be under the impression that they can evade registration.

The business would still be required to register, file a corporate tax return for the shortened fiscal year, and eventually de-register from corporate tax. There could be consequences for any delays, including for the attorneys.

The economic department and free zone authorities could request corporate tax clearance prior to authorizing liquidation, given the coordination amongst the various tax agencies.

Benefits of free zones taxes

A zero percent preferential tax rate on profits from trading eligible commodities was recently extended to commodity traders operating out of free zones, which are not considered "designated zones."

The topic of trade enterprises located in "designated zones" is still up for dispute. Are these businesses qualified to receive the special tax rate on "high-sea sales" and on direct or third-port shipments?

The points made by each side of the argument are equally valid. It is still unclear if the location of the company or the items should determine the "distribution of goods in or from a designated zone."

I've seen a lot of individuals argue that third-port shipments need to be qualified for the preferred rate by citing the second public consultation document (PCD). If this is the case, the PCD also recommended dividing a manufacturer's revenue into income from distribution and income from manufacturing.

When it comes to public consultation documents, depending only on them might not be the best course of action. Free zone businesses involved in different qualifying activities must also navigate the inclusions and exclusions within the specific qualifying activity's scope.

Sufficient material

In order to receive tax benefits from free zones, enterprises must maintain sufficient operations within the designated free zone. It can take a lot of restructuring to achieve the necessary substantive requirements.

It's common to establish resolutions for the upcoming year, but these generally fall through in a matter of weeks or months. Plans for the upcoming tax era shouldn't be flimsy. Penalties and lost possibilities for tax optimization could arise from any gaps.

Business owners should inquire about it, and the information would be available to plan for any potential tax ramifications.

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