Tax Compliance for Sole Establishments in UAE

Tax Compliance for Sole Establishments in the UAE

In the UAE, sole establishments are considered a form of Business or Business Activity conducted by an individual in the country. The tax compliance requirements for such entities are outlined under the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, along with applicable federal and emirate-level regulations.

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1. Taxation Scope for Sole Establishments

• Taxable Business Activity:
  A sole establishment engaged in a Business or Business Activity in the UAE is subject to Corporate Tax on income derived from that activity.
• Income Subject to Tax:
  Income generated from the Business or Business Activity performed within the UAE is taxable. Income not related to the Business or Business Activity in the UAE may not be subject to Corporate Tax.

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2. Registration Requirements

• Tax Registration:
  • Sole establishments conducting taxable Business or Business Activities must register for Corporate Tax with the Federal Tax Authority (FTA).
  • They are required to obtain a Tax Registration Number (TRN).
• Exemptions:
  • Sole establishments that are exempt persons, such as qualifying Public Benefit Entities or qualifying Investment Funds, may be exempt from registration unless they undertake activities subject to Corporate Tax.

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3. Record-Keeping and Financial Documentation

• Financial Records:

  • Sole establishments are mandated to maintain accurate financial records reflecting assets, liabilities, income, and expenses.
  • These records should be prepared in accordance with applicable accounting standards and should reflect the financial position of the business for each relevant financial period.

• Financial Statements:

  • Preparation of financial statements is required, which will be used to determine taxable income.

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4. Tax Filing and Payment

• Tax Returns:

  • Sole establishments must file annual Corporate Tax returns based on their financial statements.
  • The return should include details of income, allowable expenses, and tax payable.

• Tax Payments:

  • The applicable Corporate Tax rate is set out in the law (initially 0% at enactment, but subject to change).
  • Payments are to be remitted within prescribed deadlines, typically aligned with the filing schedule.

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5. Withholding Tax and Other Considerations

• Withholding Tax:

  • At the time of enactment, the applicable Withholding Tax rate is 0%.
  • This rate may be adjusted through Cabinet decisions.

• Other Tax Obligations:

  • Sole establishments should also comply with any other applicable taxes or levies at the emirate level, if applicable.

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6. Compliance Monitoring and Penalties

• Audit and Inspection:
  • The FTA may conduct audits or inspections to verify compliance.
• Penalties:
  • Failure to register, file returns, or pay taxes on time can result in penalties, fines, or other enforcement actions.

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7. Special Considerations

• Non-Resident Sole Establishments:

  • If a sole establishment is owned by a non-resident individual but has a Permanent Establishment (PE) in the UAE, it will be subject to Corporate Tax on income attributable to that PE.

• Income Not Related to UAE Business:

  • Income not connected to the Business or Business Activity in the UAE is generally not taxable under the Corporate Tax Law.

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Summary:
Sole establishments in the UAE must register for Corporate Tax if engaged in taxable activities, maintain proper financial records, file annual tax returns, and pay any applicable taxes. They should also stay updated on any changes in tax rates or compliance requirements issued by the Federal Tax Authority.

This is not a tax-related question.