UAE Corporate Tax: What It Means for E-Commerce Businesses

The Emirates is reputed globally for its supportive business environment and lucrative tax regime. However, the introduction of the latest UAE corporate tax guide on November 11, 2024, containing new laws and regulations associated with corporate tax, has greatly affected diverse businesses across the country, including e-commerce businesses. 

The changes in the standard UAE corporate tax regulations and laws have made it necessary for businesses operating in the country’s diverse sectors to adapt themselves to the tax amendments. This blog will help guide you in this respect by featuring the deductions and exemptions in the Emirates’ corporate tax law, methods to calculate it, to understanding its overall impact on e-commerce businesses.

Understanding Computation of UAE Corporate Tax

The latest amendment in the UAE corporate tax laws introduced a fixed rate of 9% and 0% for diverse businesses operating in the country with taxable income exceeding AED 375,000 and below this amount, respectively. From e-commerce businesses to retailers and digital service providers, every business owner was affected by this amendment.

However, businesses operating in free zones and small-scale companies with less taxable income were less affected. The latest added amendment includes all the instructions for eligible taxpayers, covering all CT return activities, timeframes, and methods. Its main focus is to make it understand how the CT’s different but linked connections can streamline the tax return filing process.

Calculating UAE Corporate Tax Returns: Two Major Methods

To calculate and fill the corporate tax accurately, businesses operating in the UAE can select between the following two major methods:

1. Cash Basis Accounting Practice

This method of accounting practice involves recording revenues and expenses only when actual cash is received or paid out by the business. Cash basis accounting is considered the simplest method to calculate returns, as it only involves tracking cash inflows and outflows. As it doesn’t involve tracking accounts receivable, money owed by customers and accounts payable, or money owed to vendors, it does not always represent the actual financial position of a business. It is generally used by small businesses with minimal credit sales, as it provides a clear picture of current cash on hand.

2. Accrual Basis Accounting Practice

This method of accounting practice involves recording revenues when they are earned and expenses when they are incurred, even if the cash is not paid or received yet. This accounting practice provides a clearer picture of businesses’ financial performance over a period, as it allows them to record transactions as they happen not when the cash flows, but is more complex to manage. In simpler words, it involves recording revenues when a sale occurs and a purchase is made, even if the payment is not received or issued.

Key Steps in UAE Corporate Tax Returns Filing in UAE

It has become extremely crucial for businesses with taxable income exceeding AED 375,000 to do corporate tax registration in Dubai, UAE which is required to keep their business operations compliant with the newly introduced corporate tax amendments. Key steps in the tax filing procedure are as follows:

1. Determine Eligibility: The first step involves determining your eligibility as a corporate taxpayer. Calculate your taxable income, and if it exceeds the set amount, then you’ve to file for the tax returns. However, businesses operating in the free zones can expect exemptions.

2. Corporate Tax Registration: If your business is an eligible taxpayer, then the second step involves registering your business with FTA (Federal Tax Authority), which will assign you a unique TRN (Tax Registration Number).

3. Maintaining Financial Records: Businesses need to maintain accurate financial records of their incomes, profits, losses, expenditures, etc. They can take assistance from a tax consultant in this respect.

4. Calculate Taxable Income: By eliminating allowable expenditures like workforce salaries, rent costs, marketing costs, etc., calculate the overall taxable income of your business while ensuring compliance with the FTA tax calculating standards.

5. Submit Returns & Pay Tax: FTA has decided that businesses operating in the Emirates need to fill the UAE corporate tax annually. The required tax liability must be paid before the end period, which is within nine months after the end of a financial year.

Deductions and Exemptions in UAE Corporate Tax Law

To encourage businesses in the Emirates to comply with the latest amendment in the corporate tax law, the FTA declared clear deductions and exemptions. Common deductions include operational costs like payrolls, rent, salaries, etc.; expenditures on machinery; marketing expenses, etc. Typical exemptions include earnings from dividends and funds from government initiatives.

Strategies to Avoid Tax Penalties for E-Commerce Businesses

Some useful tips that can help e-commerce businesses avoid penalties related to UAE corporate tax law are as follows:

• Comply with three major guidelines by the FTA that are tax computation, accurate financial record keeping, and tax filing.
• Stay updated on any changes or additions in the UAE corporate tax laws to ensure your business’s compliance with the tax policies.
• If you operate in the free zone, then understand the eligibility requirements that can reduce your tax liabilities. You can get assistance from an experienced and licensed tax consultant.

Conclusion

It requires a deeper understanding of Emirates’ corporate tax laws, registration, filling process, etc., to develop a clear plan to ensure compliance with the standard FTA guidelines. Connect with Taskmaster Commercial Brokers LLC, the leading tax consultants across the UAE, and make tax filing easier and simpler. Our team of tax specialists with in-depth knowledge of the country’s taxation system will assist you in accurate tax planning, audit preparation, and compliance with the standard guidelines to avoid penalties.

Also Read – How to Claim Input Tax Credit (ITC) Under VAT Services in UAE