What to do in the UAE after registering a company?
Business
registering a company
In this article:
Once a legal entity is incorporated in the UAE, it is necessary to keep accounts, file returns and take other steps to comply with local laws when running a business.
01
Accounting and auditing
All companies must keep accounting records and prepare annual financial statements. These and primary documents must be kept for 5 years. In some Free zones, longer.
Mainland and Free zones must also carry out an audit and submit financial statements to the state. However, some Free zones do not have this obligation. For example IFZA. You should therefore check whether your Free zone requires auditing and financial reporting.
There are fines for non-compliance with UAE law from AED 10,000 ($ 2,740).
Mainland and Free zones must also carry out an audit and submit financial statements to the state. However, some Free zones do not have this obligation. For example IFZA. You should therefore check whether your Free zone requires auditing and financial reporting.
There are fines for non-compliance with UAE law from AED 10,000 ($ 2,740).
02
VAT. Registration and reporting
The company must register with the tax authority and get a VAT number (TRN), if its taxable turnover and imports exceeded AED 375,000 (about $ 102,000):
The company may obtain a VAT number voluntarily if it proves that its taxable turnover exceeded AED 185,000 (approximately USD 50,000)
Once registered, the company must include VAT in the accounts and pay the tax to the budget. A VAT return must be filed and paid quarterly (for companies with turnover less than AED 150 million) or monthly (more than AED 150 million) within 28 days after the end of the tax period (quarter or month respectively).
The VAT rate is 5%. Failure to notify the tax authority of the VAT obligation could result in a fine of AED 2,000 (about $ 550). A fee of AED 15,000 (about $ 4,000) will be charged if a taxpayer fails to declare a VAT-inclusive price.
- in the preceding 12 months; or
- will exceed this threshold within the next 30 days.
The company may obtain a VAT number voluntarily if it proves that its taxable turnover exceeded AED 185,000 (approximately USD 50,000)
- in the preceding 12 months; or
- will exceed this threshold within the next 30 days.
Once registered, the company must include VAT in the accounts and pay the tax to the budget. A VAT return must be filed and paid quarterly (for companies with turnover less than AED 150 million) or monthly (more than AED 150 million) within 28 days after the end of the tax period (quarter or month respectively).
The VAT rate is 5%. Failure to notify the tax authority of the VAT obligation could result in a fine of AED 2,000 (about $ 550). A fee of AED 15,000 (about $ 4,000) will be charged if a taxpayer fails to declare a VAT-inclusive price.
03
Reports
Beneficiary Reporting (UBO)
All companies registered in the UAE (with some exceptions) are required to disclose and keep up-to-date beneficial ownership information (UBO). The report must be filed on the date the company is registered and licensed.
Companies in financial free zones, such as the Dubai International Financial Centre (which has its own specific reporting) and those directly or indirectly owned by or affiliated to the UAE or Emirati government are exempt from this obligation.
The beneficiaries are:
- An individual who owns/controls a company as the ultimate owner through a direct/indirect equity interest of 25% or more.
- An individual who has voting power of 25% or more or the power to appoint/dismiss a majority of the managers of the company or who has other instruments by which he exercises ultimate control over the company.
- For those circumstances where a UBO cannot be identified using the above two criteria, an individual holding a senior executive position in the company may be deemed to be a UBO.
Should information on the beneficiaries change, these changes must be entered in the register within 15 days.
Economic substance reporting
Companies operating in certain areas must comply with the requirements for economic substance and submit reports thereon. These companies are from the following areas:
Failure to satisfy the Economic Substance Test can result in a fine of AED 50,000 (around USD 13,000) for the first year in which the company fails the test. If the company fails the test in the subsequent year, the penalty rises to AED 400,000 (approximately USD 109,000).
- Holding company.
- Intellectual property (obtaining revenues from the use of IP).
- Distribution (purchase of goods from foreign affiliates).
- Service centres (provision of services to foreign affiliates).
- Head office of a group of companies.
- Banking business.
- Insurance business.
- Investment fund management.
- Leasing business.
- Shipping business.
Failure to satisfy the Economic Substance Test can result in a fine of AED 50,000 (around USD 13,000) for the first year in which the company fails the test. If the company fails the test in the subsequent year, the penalty rises to AED 400,000 (approximately USD 109,000).
Companies have to report on economic substance:
Notification
Must be submitted within 6 months of the end of the financial year. The notification is a document in which the company must state whether it is engaged in an activity from the list, whether it has received income and whether the income from such activity has been taxed abroad.
Once the company has received income, it will then have to submit a report in which it must describe its activities, the income received, the number of personnel involved, the real estate used, and so on, to confirm that the company is actually doing business.
Once the company has received income, it will then have to submit a report in which it must describe its activities, the income received, the number of personnel involved, the real estate used, and so on, to confirm that the company is actually doing business.
Report
Must be submitted within 12 months of the end of the financial year. There are also fees for failure to file or late filing: AED 20,000 (per notice), AED 50,000 (per report).
Country-by-Country Reporting (CbCR)
Every international holding company (IHC) whose head office is located in the UAE is required to file a CbCR report if the group’s turnover reaches AED 3 billion, AED 150 million (USD 857 million). 150 million dirhams (more than USD 857 million). Such a report must provide a breakdown of the holding company’s total income, profit before tax, income tax accrued and certain other indicators of economic activity for each jurisdiction in which the IHC operates.
The purpose of CbC reporting is to provide confirmation as to where economic value is created within the IHC and whether it corresponds to the place of profit distribution and payment of holding company taxes.
The purpose of CbC reporting is to provide confirmation as to where economic value is created within the IHC and whether it corresponds to the place of profit distribution and payment of holding company taxes.
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Income tax reporting
The UAE is introducing a 9% income tax on profits from June 2023. The tax will apply on profits of a company exceeding AED 375,000 (about USD 102,000). The tax applies to all types of companies in the UAE. However, Free zone companies continue to enjoy the preferential treatment of 0% income tax.
Any company will have to register with the tax authority for income tax. Also, the company will have to submit accounts, even if it is registered in the Free zone and does not pay income tax.
The deadlines and procedures for registration and reporting have not yet been confirmed.
We will update the information when the UAE tax authority publishes more specific information.
Any company will have to register with the tax authority for income tax. Also, the company will have to submit accounts, even if it is registered in the Free zone and does not pay income tax.
The deadlines and procedures for registration and reporting have not yet been confirmed.
We will update the information when the UAE tax authority publishes more specific information.
Transfer pricing reporting
Together with a 9% tax on income from 2023, the government has proposed to introduce transfer pricing reporting in line with OECD rules. Transfer pricing refers to transactions between affiliated parties: for example, a parent company providing management services to its subsidiaries or a company providing services to its sister company.
The essence of transfer pricing rules for tax purposes is that the transfer price must be consistent with "open market" or "market value". This prevents a group of companies from manipulating intra-group prices to reduce taxation at the expense of non-market prices within the group.
Intra-group transactions above a certain threshold will have to be reported. Transfer pricing regulations are not yet finalised, specific thresholds and obligations will be published later.
The essence of transfer pricing rules for tax purposes is that the transfer price must be consistent with "open market" or "market value". This prevents a group of companies from manipulating intra-group prices to reduce taxation at the expense of non-market prices within the group.
Intra-group transactions above a certain threshold will have to be reported. Transfer pricing regulations are not yet finalised, specific thresholds and obligations will be published later.
04
Excise Tax
Excise tax declaration
Companies that sell goods subject to excise duty must register with the tax authority and submit a monthly declaration. The tax must be paid within 15 days after the reporting month. Excisable goods include, but are not limited to:
- Tobacco and tobacco products.
- Electronic smoking devices and instruments.
- Energy drinks.
- Carbonated beverages (except carbonated water).
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