UAE Tax Expert Saqib Iqbal: Preparing for UAE’s Corporate Tax

SA Consultants Founding Partner, Saqib Iqbal, has experience with leading and consulting public and private sector companies in Corporate Finance, Taxation, and Audit in the UAE, GCC, and Globally.

Saqib is passionate about leading businesses to sustainable growth and success by improving efficiency, resolving complex issues, and optimizing processes to bridge the gap between their business aspirations and achievements.

As a key business hub, UAE will have the lowest corporate tax rates in the world. 

You have been in the financial industry for quite some time now. Can you tell us about your journey so far and how you founded SA Consultants?

It has been an explicit journey of 16 years in the finance industry. I started my journey back in 2007 with a Public Limited Company named Azgard nine limited, where I worked extensively in the corporate finance department. After moving to Dubai in 2016, I worked as a "Finance Manager" on an educational project which was part of "Dubai Investments." I worked with "Abu Dhabi Terminals (ADT)," which is part of "Abu Dhabi Ports (ADP)" as a Financial Analyst for more than three years. I have also taught business analysis and accounting subjects in many leading institutes and found it very rewarding to mentor young professionals to enhance their employability skills. 

SA consultants was my dream. Founded in 2022, it was established to be a dynamic and fast-growing professional organization committed to maintaining the highest standards of quality and providing comprehensive and specialist services both in the Middle East and abroad. Now our team consists of 25 professionals. We provide superior auditing, advisory, and consulting services. We have two offices in UAE and are a member of IGAL, a leading global network.

Considering we are nearing the implementation date of the Corporate Income Tax (CIT) in 2023, how should businesses prepare?

The CIT regime is expected to be implemented in 2023; the UAE initiates this move to meet international tax standards while minimizing the compliance burden of UAE businesses and shielding small businesses and start-ups. As a key business hub, UAE will have the lowest corporate tax rates in the world. 

From my point of view, the role of accounting will be very important, and businesses need to understand that the corporate tax will be calculated on "Net Profits" reported in a financial period. Every business in UAE should start looking into its accounting and legal structures to align with the CT requirements. 

Do you think the CIT will significantly impact businesses in the UAE?

Yes, I believe CIT will have a significant impact on businesses in UAE; in order to talk about the existing ones, they would be entitled to claim for increased costs under the typical change in law provisions in the concession. Parties involved in projects should consider how to manage accounting requirements to capture all relevant income, expenses, and deductions under the CIT regime. For the forthcoming businesses, CIT will impact sponsors' Internal Rate of Return, and the treatment of expenses and allowable deductions under the CIT regime will be an important consideration.

What are the effective dates, rates, and exemptions of the UAE CIT?

CIT is effective for financial years starting on or after 1 June 2023, June year-end - first CIT year is 1 July 2023 to June 2024, returns in end of 2024, 

Progressive tax rates

• 0% for taxable income below AED 375,000

 • 9% for taxable income above AED 375,000; e.g., if taxable income is AED 500,000, 9% applies to AED 125,000

Exemptions

• Businesses engaged in the extraction of natural resources are subject to Emirate-level corporate taxation and be outside the scope of UAE CIT.

• Individuals should generally not be in-scope unless they undertake a business activity linked to a trade license.

• Dividends & capital gains earned by UAE businesses from qualifying shareholdings in and outside UAE (details to be provided by the law).

• No withholding tax on domestic and cross-border payments.

• Gains from Qualifying intra-group transactions & reorganizations shall be exempt subject to additional conditions being met.

Are free zones in the scope of CIT?

Free zone entities will be treated as taxable entities subject to 0% rate provided, they comply with all regulatory requirements and do not conduct business with mainland UAE, but they will be required to register and file annual CIT returns.‍

What are the provisions for tax grouping?

A group of companies may elect to form a fiscal unity group for CT purposes, subject to conditions. There might be a need for new consolidated audited financial statements for CT purposes. Generally, a high shareholding threshold is needed to qualify for a CT group, which might be different from VAT grouping requirements.

‍What are some accounting considerations regarding P&L and cash flow?

Corporate tax will be calculated on Accounting Net Profits, which means every business must carefully understand the requirements of CIT and align their books. Treatments related to non-cash items, including depreciation, etc., another example could be where companies with a higher level of inventory must focus on year-end stock counts and pass the adjusting entries for any losses.

How should finance teams approach controls and processes around accounting, such as chart of accounts, process, and governance?

Finance teams should be transparent, and a chart of accounts should provide a complete and clear picture of every account in the general ledger of the company, broken down into sub-categories which should give the interested parties a clear insight into the company's financial health, accounting controls are to ensure that the organization is compliant with all the reporting requirements including CIT.

What tools are companies using to manage their expenses, and how would they benefit from Pluto’s expense management platform?

Companies should look for tools that interface with their accounting software if it isn't already included; at times, when my employees are on the road and often come across various expenses like meals and mileage, then such software must have the capacity to accommodate these transactions.

Pluto's expense management comes in with multiple benefits; it's a new technology that enables companies to manage their finances, gives them a cost control mechanism, eliminates petty cash, hassle-free reimbursements, and a reconciliation module for cash spend.

How can a specialist like yourself help companies navigate the upcoming changes in CIT?

The first and foremost thing is to make the management realize and accept the imminent change of Federal Corporate Tax and help them prepare their accounting system from the beginning of the respective tax assessment period. We at "SA Consultants" help our clients change their mindsets as they are unfamiliar with the upcoming changes, and we take this responsibility to update them immediately to make tax and pricing strategies for them. We work with our clients directly and on the sidelines, along with their Accounting/Finance teams, to help them understand the laws by looking at the potential impact on their business operations and the business's financial health.

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