The Federal Tax Authority (FTA) recently issued a Corporate Tax Guide (CTGDTI1) that outlines key aspects of determining taxable income for businesses. This guide provides important insights for taxable persons, including the requirement that connected persons must be compensated at market value. It also emphasizes the need for benchmarking studies to establish fair market value for salaries paid to connected persons.
The guide confirms that accounting depreciation, amortization, and provisions are permitted for tax purposes. However, it introduces a new provision where any reversal of a provision created before a person becomes taxable will be subject to tax once they become taxable. Additionally, fines paid for violations of laws are not deductible for corporate tax purposes, similar to over speeding fines. However, fines incurred during regular business operations may be allowable for tax purposes.
In terms of interest deductions, if net interest exceeds Dh12 million per annum, taxable persons can claim the greater of Dh12 million or 30% of Ebitda. Any remaining interest can be carried forward for up to ten years. Dividends received from resident juridical persons are tax-exempt, while those from foreign juridical persons are exempt if certain conditions are met. Capital gains, impairment gains, and foreign exchange gains are also tax-exempt when participation criteria are satisfied.
The guide also addresses the treatment of losses, allowing indefinite carryforwards and transfers of losses within a qualifying group. Contributions to private pension funds are permitted up to 15% of an employee’s total remuneration, based on payments made. Furthermore, the withholding tax credit takes precedence over the foreign tax credit, with limitations on the amount that can be claimed based on corporate tax owed in the UAE on foreign source income.
Overall, the CTGDTI1 provides valuable guidance on corporate tax matters in the UAE. While it includes case studies for illustrative purposes, it is recommended that taxable persons refer to the guide for a better understanding of corporate tax implications. For further queries or clarifications, individuals can contact Mahar Afzal, a managing partner at Kress Cooper Management Consultants, who provided insights on the guide in this article.
