Imminent corporate tax not a burden for Indian businesses in UAE

Even if a new corporate tax is being introduced in United Arab Emirates after June 1 this year, NRI businesses in the gulf nation remain optimistic about the growth of business transactions between India and the UAE.

NRI and Indian residents doing business in the UAE have also stated that taxation is a major relief to avail the double-taxation avoidance schemes and safeguard the uncertainties of income tax levied in India on their foreign income, according to the experts.

Dr Sahitya Chaturvedi, a Chartered Accountant and Convener of Retail Focus group of Indian Business and Professional Council, said: “Taxation is an initiative for globalisation of the business from Gulf countries and the UAE has introduced the lowest corporate income tax rate within the GCC region at a standard rate of 9 per cent.”

“The UAE CT regime has been designed to incorporate best practices globally and minimize the compliance burden on businesses,” he said.

CA Harikishan Rankawat, Chairman of the Institute of Chartered Accountants of India (ICAI) Dubai Chapter, said that the decision to provide tax relief to companies with revenue base below or equal to AED 3 million is a welcome relief and reflects the visionary and pro-business leadership of the UAE.

“As per the new Ministerial Decision No 73, the AED 3 million revenue threshold will apply to tax periods starting on or after 1st June 2023 and will only continue to apply to subsequent tax periods that end before or on 31st December 2026,” he said.

According to Rankwat, even if a business generating more than AED 375,000 net profit but has revenue below AED 3 million, can seek Small Business Relief and thus get exemption from Corporate Tax. “Even though the tax relief is provided to small businesses, but they have to register for UAE Corporate tax and file their Tax Return within 9 months from the end of their accounting period,” he said.

Giving a textile industry perspective, Chandrashekhar Bhatia of the Global Business Federation said the impact will not be adverse as textile is a big industry and 9 per cent will not be a major burden.

“Every developing country looking to extend facilities to businesses and people requires taxation. So, this is for the larger good of the business ecosystem and economic development,” Bhatia told PTI.

Janak Panjuani, the Director of the Puthran Chartered Accountants, said that on management remuneration payable to the board of directors, said a safe harbor provision from transfer pricing perspective could be 10 per cent of net profit as per article 171 of Commercial Company law.

On deductibility of interest on lease liability and Depreciation on Right of use assets, he said that interest on lease liability does not satisfy definition of Interest as per Corporate Tax law.

“Further Article 20(7) states that where there is conflict between Provisions of Corporate tax law and applicable accounting standards the provisions of the Corporate Tax law will prevail. Accordingly, as the things stands, subject to any cabinet decision in this regard it is advisable to disregard accounting as per IFRS 16 and in case of lessors’ depreciation on leased assets should be allowable as deductions while computing taxable income,” Panjuani said.

In case of Lessee, it will be leasing rent paid should be allowable as deduction while computing taxable income, he said.

(With inputs from PTI)

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