Computation and Payment of UAE Corporate Tax
Navigating the intricacies of UAE Corporate Tax Computation and ensuring timely, accurate Payments of Tax is crucial for businesses, warranting a comprehensive understanding of the regulatory framework. In today's blog, we shall see how tax is computed and various ways of settling the tax liability.
For Corporate Tax purposes, it is essential to account for all amounts in UAE Dirhams. In the event that expenses are incurred in a currency other than UAE Dirhams, these amounts must be converted using the relevant exchange rate established by the Central Bank of the UAE.
Calculation of Corporate Tax
In order to compute Corporate Tax amount due, we must calculate first Taxable Income for a Tax Period.
The taxable income for a tax period is the accounting net profit or loss of the Business, after making certain adjustments defined in the Corporate Tax Law. The adjustments are as under:
a. Unrealised gains or losses e.g., change in the value of assets / liabilities before sale or settled.
b. Exempt Income e.g., Dividends subject to certain conditions
c. Intra-Group Transfers
d. Adjustments for transactions with related parties or connected persons.
e. Deduction which are not allowed for tax purpose e.g., some expenses are 100% allowed, some partial allowed while some expenses are 100% disallowed.
f. Any Incentive or Tax reliefs e.g., Tax Loss helps to reduce Taxable Income
g. Any other adjustments specified by the Authority.
Settlement of Corporate Tax
If you are liable for Corporate Tax Payment, then you can settle the same as under:
a. Withholding Tax Credit: You can reduce your corporate tax due by utilising Withholding Tax Credit if any. If the Withholding Tax Credit is greater than Corporate Tax Liability for the tax period, then excess Withholding Tax Credit can be claimed as refund.
b. Foreign Tax Credit: if any remaining Corporate Tax due after utilising Withholding Tax Credit, can utilise Foreign Tax Credit if any to reduce your Corporate Tax due. If Foreign Tax Credit is greater than Corporate Tax Liability for the relevant tax period, then excess Foreign Tax Credit will be forfeited and neither refund can be claimed for the excess Foreign Tax Credit nor can be carried forward to subsequent years.
c. Balance Corporate Tax Due: If any Corporate Tax remains due after utilising Withholding Tax Credit and Foreign Tax Credit, the same must be paid within 9 months from the end of the relevant tax period or any other date specified by authority and failure to pay within due date shall result in penalty thereon.
Calculating the corporate tax liability involves intricate adjustments to the business's net profit or loss based on factors outlined in the Corporate Tax Law. These include unrealized gains, exempt income, related party transactions, deductions, incentives, and more. Payment options include utilizing withholding and foreign tax credits, followed by settling any remaining tax within the specified timeframe. Adhering to these processes ensures accurate tax payment, highlighting the significance of compliance and efficient tax management for businesses.
Are you aware of the various Corporate Tax Adjustments? If not, Contact us to know more or check out our Corporate Tax services
