Corporate Tax Anti-Abuse Rules in the UAE


Anti-Abuse Rules under UAE Corporate Tax

The UAE government is stricter regarding following taxation rules and regulations. The anti-abuse rules in UAE were preventive measures against tax irregularities. These anti-abuse regulations promote international tax transparency and combat Corporate Tax abuse. The Economic Substance Regulations (ESR) is at the forefront of these taxation efforts. ESR’s core role is to monitor the businesses operating in the country and ensure they have an authentic economic presence there.

Let’s learn more about anti-abuse Corporate Tax Laws in UAE and how Flyingcolour Tax Consultant and Services can help you commit to fair tax practices.

Corporate tax

What Tax Abuse Implies?

Tax abuse put forward is a kind of misuse of the taxation regime. That is, an abuse of taxation, particularly when the taxpayer secures all tax advantages through literal transactions but subverts the original purpose behind it. Even though the UAE provides liberal space for personal tax planning to minimize the burden, such rights should not aim for tax abuse. The anti abuse UAE tax reforms by the Government are such a mechanism that challenges such misuse tendencies.

Corporate Tax Rate UAE

As of January 2022, the UAE Ministry of Finance has declared the Corporate Tax will be applicable at a standard rate of 9% on Corporate entities. Therefore, the tax segmentations and rates are as follows:

● Small and mid-scale businesses with an annual income of up to AED 375,000 will be charged 0% tax rates.
● The standard 9% taxable income for businesses above AED 375,000 yearly.
● A different tax rate of 16% is designed for large multinationals meeting specific criteria.

Corporate Tax UAE

The UAE government has a set of rules and regulations related to Corporate Taxation. These regulations vary for mainland companies and the free zones. To simplify the provisions and regulations of the taxation regime, partner with Flyingcolour Tax Consultant and Services who will break down each complicated rule for you.

The most notable of the anti-abuse tax avoidance measures in UAE has been laid in Article 50 of the Corporate Tax Law. The taxation legislation has two parts:


1. Corporate Tax Advantage:- The CT advantage of the UAE provides relief to taxation for small businesses. Such tax relief is provided to businesses at most AED 3 million during every relevant year. The Corporate Tax advantage is not limited to the following-

● Augmented or refunded Corporate Tax.
● Reduction of the Corporate payable tax.
● Postponing the pay for Corporate Tax.
● Acceleration of the Corporate Tax refund.
● Sidelining any obligation to account or deduct taxes.

The UAE tax legislation authority reserves the right to determine one or more Corporate Tax advantages gained through transactions. However, the authority must issue assessments to give effect to those determinations. It can include the following:

● Permitting or restricting any reliefs, deductions, or exemptions in estimating the Corporate Tax payable.
● Assigning any particular deduction, exemption, or relief to any specific individual or organizational entity.
● Restructuring the nature of the law, payment types, amount changes, or any other amendments.
● The authority has the right to negate the effect of the law that otherwise would create confusion with other provisions of the tax law.
In every way possible, the UAE government has legitimate authority to make adjustments to the tax liabilities of any individuals or entities being affected by the determination.


2. Corporate Tax Abuse:- The other part of the legislation is about tax abuse. That is, you will be liable for tax abuse if, from your actions, the following can be concluded:

● If any of your transactions or part of arrangements lacks valid fiscal or commercial reasons for the economic reality.
●When the core purpose of your arrangement or transactions or any segment of it is about gaining CT advantage. Such gaining motive of yours is inconsistent with the purpose of the UAE tax reforms.

Corporate Tax

Applicability of the Anti-Abuse Corporate Tax Laws

The Government considers the following factors for deciding on the applicability of the anti-abuse rule for any given transaction or arrangement-

● The substance or form of arrangement and transactions.
● The manner of the transaction verifying how the proceedings were conducted. That is between whom, signed details, etc.
● The exact timing of the transaction and arrangement carried out.
●In what way does Corporate Tax compliance UAE influence the outcome of the transactions?
● Any changes or updates on the taxable person’s financial position can be anticipated as the cause for transactions and arrangements.
● Other circumstances and mitigating factors may decide on the applicability of the anti-abuse rule.

The applicability of the anti-abuse tax laws can be modified in the future if the authorities find it necessary as per the global and domestic situations.


Penalization of the Anti-Abuse Tax Rules

The penalties for violating the anti-abuse tax rules are rigid and depend on the intensity of the violation. The Tax procedures laws determine the penalties and fines for tax abusers to stabilize tax planning in the UAE. Such penalties may vary from prison sentences to fines multiplied by the unpaid tax amount. If the extent of tax misuse is concerning, then it can include both individuals and entities.


How strict are the UAE Anti-Abuse Rules?

The anti-abuse rules by the UAE government are among the vital measures introduced to foster fair and transparent tax practices. They see the abusive tactics as fiscal and moral parasites endangering the foundations of the governmental tax regime. The anti-abuse rules are a sincere act of penalizing the trespassers in the form of imposing fines, imprisonment, or cancelling licenses if they find it necessary to address the issue.


How Flyingcolour Can Help You?

It’s challenging for newly opened businesses, especially those set up on foreign lands, to understand the taxation rules and regulations. The Flyingcolour team comprehensively understands these Corporate Tax norms and the robust anti-abuse tax evasion prevention UAE regulations. As your ultimate partner in fostering financial growth and sustainability in the competitive market, Flyingcolour consultants will share your burden of dealing with stringent taxation rules. From now on you can focus on growing your business while leaving the technicalities with our team.

To learn more about Corporate Tax Anti-Abuse Rules in the UAE, book a free consultation with one of the Flyingcolour team advisors, simply call +971 50 5585305 or send WhatsApp messages to +971 4 4542366. you can also drop an email to info (at) flyingcolour (dot) com.

This article was published on 27-05-2024. The information provided in the article is based on the policies and rules applicable at the time of writing it. Talk to one of our consultants for any recent updates or changes.

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