While the majority of respondents to a survey in the UAE are following the development regarding the introduction of corporate tax, less than a quarter of respondents feel very well informed about the subject, a report said.

This is not unexpected given that details of the tax law and any implementing regulations are yet to be released, said professional services firm Deloitte in its client survey conducted in order to understand the steps businesses have already taken to get ready for the introduction of the new tax.

On January 31, 2022, the Ministry of Finance (MoF) announced that the UAE will introduce a federal corporate tax (CT) on business profits that will be effective for financial years starting on or after  June 1, 2023. The introduction of a corporate tax regime in the UAE is a significant event for most businesses with broad implications for people, processes and technology.

“Some of the reasons behind this decision are that the UAE is looking to cement its position as a leading global business hub, in addition to accelerating its transformation to achieve its strategic objectives. Overall, this announcement reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices,” said Nauman Ahmed, Middle East tax leader.

“It is important to note that although the law has not yet been issued, the UAE Federal tax Authority (FTA) has publicly communicated the key design principles and policy choices of the new regime. This provides a solid platform on which a preliminary (qualitative and quantitative) assessment can be performed with a view to assess the financial impact and identify key risks and weaknesses. Businesses should consider performing these assessments now so that they have adequate time to prepare,” said Muhammad Bahemia, Deloitte Middle East Business tax Leader.

Almost half of the Deloitte survey respondents represent local businesses or businesses headquartered in the UAE. Many of these businesses will be facing the challenge of dealing with CT for the first time and may have to significantly adapt their business processes and systems to deal with new compliance obligations. The remaining respondents represent foreign owned businesses or businesses headquartered outside the Middle East region.

Foreign based groups and local businesses have different features/profiles. Local businesses typically have much larger operations in the UAE and have often had less exposure to direct taxes. Therefore, the tax function is typically smaller and less mature. Accordingly, the introduction will be likely present more challenges for local businesses.

Although most businesses have a full understanding of what corporate tax is, have sufficient resources in place and have an in-house tax function, 69% of them are still planning to hire an external advisor to support them throughout their corporate tax journey according to survey respondents.

“Businesses have 16 to 22 months to prepare and, therefore, it is important to consider that this a marathon and not a sprint. There is a great deal to be done for every business to be able to achieve day one compliance. We hope these results provide some interesting food for thought on the commencement of their implementation journey”, concluded said Alex Law, Partner and UAE tax leader.  – TradeArabia News Service