At Craft Interactive Technology LLC, we are committed to providing ERP solutions that meet the latest regulatory standards. Our ERPNext software has been enhanced to comply with the UAE Corporate Tax (CT) law, ensuring businesses can operate confidently within legal frameworks.
What is Corporate Tax (CT) in the UAE?
The United Arab Emirates introduced federal Decree Law No. 47 of 2022 on corporate taxation on 9th December 2022. This law applies to corporations and businesses, with its official publication in the Gazette on 10th October 2022, becoming effective 25th October 2022.
The CT framework aligns the UAE with the Global Minimum Tax Initiative (GMTI) under OECD’s BEPS Pillar Two project, ensuring international compliance for UAE businesses.
Applicability of Corporate Tax
Corporate Tax applies to financial years starting on or after 1 June 2023. Examples:
- Companies with a fiscal year from 1 June 2023 to 31 May 2024 will be subject to CT starting 1 June 2023. The first tax return will likely be due late 2024.
- Companies following a calendar year (1 Jan 2023 – 31 Dec 2023) will be subject to CT starting 1 January 2024, with filings due mid-2025.
CT Rate Slabs in the UAE
The UAE CT regime introduces a tiered system:
Exempted Persons
- Federal and local government entities
- Government-controlled entities (partially or fully owned)
- Persons engaged in extractive businesses (natural resource exploration)
- Persons engaged in non-extractive natural resource activities (processing, refining, transporting resources)
Free Trade Zone Businesses
- Companies registered in Free Trade Zones that do not conduct business on the mainland may benefit from 0% tax or applicable exemptions.
Tax Computation Framework
Some incomes are exempt, while certain expenses are deductible. Examples:
Revenue Items:
- Dividend and profit distribution
- Other income
- Foreign exchange gains or losses
Deductible Expenses:
- CAPEX (capital expenditures)
- Expenses related to exempt income
- Interest on business loans (limited to 30% of EBITDA)
- Entertainment expenses (50% deductible)
- Penalties, fines, and donations/grants for public benefit
- Related party transactions for carry-forward or intra-group losses
How ERPNext Supports Corporate Tax Compliance
Our ERPNext system now includes features to simplify CT compliance:
1. Identify CT Applicability
During company setup, users can indicate if their business falls under Corporate Tax regulations. This ensures accurate tax calculations from the outset.
2. Define Tax Slabs
ERPNext allows businesses to independently manage tax rate slabs, reflecting the impact of different CT percentages on computations.
3. Account-Level Tax Management
Certain accounts may be exempt from CT or have special rules. ERPNext allows users to mark accounts with CT percentages or absolute values, ensuring precise calculations.
Using these inputs, ERPNext automatically determines the net profit subject to Corporate Tax and generates the correct CT amount.
Disclaimer
This article is prepared by Craft Interactive Technology LLC using publicly available information. It should not be considered legal advice, and Craft Interactive disclaims responsibility for any loss or damage arising from its use.