Chapter 2: The Legislative Hierarchy & Pyramid of Authority | UAE Corporate Tax Masterclass — Transcript

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1. 0:00Welcome back everyone uh to the second  chapter of UAE corporate tax series.
2. 0:05In last chapter we discussed about corporate  tax, corporate tax journey, 9 percentage and
3. 0:13certain other factors pillar 2 all these matters  we have discussed. Today we are going to discuss
4. 0:19about authorities involved in the UA corporate  tax law and what are all the documents or law
5. 0:27published by the authority. how to read it and  uh uh in which chronological order the documents
6. 0:34needs to be approached. This is what we are going  to discuss today. Now let let me start with the
7. 0:41corporate tax law. So the corporate tax law is  called federal decree law number 47 of 2022.
8. 0:57Even though the corporate tax is implemented with  effect from 1st June 2023 in the previous chap
9. 1:03chapter I had explained that the corporate tax law  published in the year 2022 9th December 2022. So
10. 1:11the law number is 47 of 2022 which is corporate  tax law. Now whenever any federal decree law
11. 1:20got published who is approving this federal  decree law it is approved by UAE president.
12. 1:30If you see any federal decree law  uh be it corporate tax or VAT or
13. 1:35commercial company law any other law  the primary law it always approved by
14. 1:40the honorable UAE president and UA  corporate tax law has 70 articles.
15. 1:53Article one is talking about definitions.  Till article 70 there are 70 articles. If
16. 2:00you just read the corporate tax law will you  get a clarity? No. There are other documents
17. 2:07which is explaining about corporate tax  law based on certain articles what is
18. 2:13written in the article. The cabinet which  we will discuss the ministry they will also
19. 2:20like you know multiple authorities are coming  with different different explanation and uh
20. 2:26in order to get a full clarity need to read  the document in a particular order. So the
21. 2:32primary document what we need to always refer  for corporate tax is federal decree law number
22. 2:3847 of 2022. In UA corporate tax law if you  read it this is mainly handling who and what
23. 2:55these are the two aspects UA corporate tax  law is dealing. Who means what? like I mean
24. 3:01uh like who should pay tax example
25. 3:06who should pay tax they have explained residents  should pay tax when non-resident should pay tax
26. 3:15uh they have clearly given the guidelines uh  of like you know who should pay taxes where
27. 3:21it is explained it is explained in article  11 of UA corporate tax law another example
28. 3:29who is exempt from corporate tax. This is  explained in article 4. There are certain
29. 3:40entities who are exempt from paying taxes. In  previous chapter also we just uh uh we like in
30. 3:51previous chapter also we just discussed about  this particular matter that who is exempt from
31. 3:56uh corporate tax. We discussed government  entities, government controlled entities,
32. 4:00extraction of natural resources. There are  other categories also. When we discussed
33. 4:05about exempt person, we will discuss  in detail. And what is the tax rate?
34. 4:17Corporate tax law has explained in article 3.  What is the tax rate? The tax rate is 0% 9%
35. 4:2615%age for multinational entities. All these  things I have explained in the UA corporate
36. 4:31tax law. That's why I told it is mainly handling  who and what as I explained to you just because
37. 4:40reading corporate tax law we will not get any  clarity. We need to refer the other documents
38. 4:45also. After corporate tax law, the next primary  document what we need to refer is cabinet decision
39. 4:58which is CD cabinet decision actually certain  decision passed by the UAE cabinet and any
40. 5:05cabinet decision published it's always  approved and signed by prime minister of
41. 5:15UAE. So the federal decree law is approved by the  UAE president and cabinet decisions are approved
42. 5:22by the prime minister of UAE. Cabinet decisions  primarily handling how much. So this who what
43. 5:34how much this is for like you know just for your  easy understanding how much is the main area where
44. 5:42cabinet decisions are handling. Now if you read  the corporate tax law as I told it is mentioned
45. 5:49who will pay tax, who will not pay tax, what is  the tax rate. If you like you know see the entire
46. 5:57corporate tax law you will not find the 375,000  dhams threshold that 0% if you read the corporate
47. 6:07tax law article 3 it is mentioned that uh 0%  tax will be paid by businesses who makes certain
48. 6:17revenue. What is this certain? It is not mentioned  over and above certain revenue 9%age will be
49. 6:24taxed. Now in the next paragraph if you see it  is written free zones will pay 0%age tax subject
50. 6:33to the condition and uh on qualifying income.  Now what is qualifying income? What are all the
51. 6:39conditions not explained like this? The tax law  itself is not giving a full clarity where the UAE
52. 6:49cabinet will come in picture with more clarity.  The first cabinet decision got published which is
53. 6:56related to uh corporate tax was cabinet decision  number 116 of 2022. So immediately after the
54. 7:06corporate tax law published the cabinet edition of  116 of 2022 also came in picture which explained
55. 7:14the threshold of 375. In cabinet edition 116 of  2022 it is written that 375,000 dhams profit will
56. 7:25be taxed at 0%age and above 375,000 dhams it  will be taxed at 9%age. This is explained in
57. 7:35cabinet edition number 116 of 2022. After that a  lot of cabinet decisions uh have come in picture.
58. 7:44We will discuss as and when we uh progress  each chapter we will come across with many
59. 7:50uh cabinet decision which got published.  Just to give you uh like you know another
60. 7:55uh cabinet decision which is very important is  cabinet decision number 49 of 2023. So the idea
61. 8:05is not to explain the cabinet decisions. Idea  is to give like you know why cabinet decisions
62. 8:11are important. Why only corporate tax or like you  know the corporate tax law only cannot give you a
63. 8:17full clarity. That's the whole idea. Cabinet  decision of 2023 49 of 2023 is dealing with
64. 8:26natural person. Who is natural person? Natural  person in general we can call individuals.
65. 8:35Everybody know that there is no personal income  tax in UAE. Then why there is a particular cabinet
66. 8:41decision for uh natural person. Now from now  onwards whenever like you know if you want to
67. 8:49talk in a much better way or in a professional way  you should start using the word natural person and
68. 8:58jurorical person. Now what is natural person? What  is juredical person? Natural person we always say
69. 9:04oh it's an individual. Any individual who has  a trade license, who has doing some conducting
70. 9:13some sort of business activity in UAE, that  particular angle is called natural person.
71. 9:20When it comes to the corporate tax law, jurorical  person can be any incorporated entity. It can be
72. 9:28a company, a public limited company, limited  liability partnership, many things are there.
73. 9:34So going forward we will be always using the  word natural person and jurorical person and
74. 9:39you need to make your understanding clear that  natural person we are referring individuals
75. 9:44uh and those who are conducting business in the  individual capacity whereas jurorical person is a
76. 9:53u jurorical person is a registered entity. Now  coming back to cabinet decision number 49 of
77. 10:012023 in that the cabinet has explained that  when a natural person will pay UA corporate
78. 10:11tax. Of course the personal income tax is not  there that doesn't mean all income generated
79. 10:18by an individual is not falling under  the corporate tax law. Certain incomes
80. 10:23are excluded certain incomes are included.  So this decision explained a natural person
81. 10:36conducting business in UAE
82. 10:47earning more than 80 1 million. in in  a Gregorian calendar year. Gregorian
83. 11:06calendar year is nothing but the calendar year  which is followed from January to December.
84. 11:13Now let's break it down. A natural person,  one individual conducting business in UAE.
85. 11:19Is this referred that u someone who has a company  in UAE and doing business through that company?
86. 11:25No. Here it is referred a natural person or an  individual who is conducting a business in the
87. 11:32individual capacity. You can take the example  of freelance permit or you can consider soul
88. 11:38establishments. These are the categories coming  under the natural person. So if an individual who
89. 11:44is conducting some sort of business activity,  you can consider a freelance photographer or a
90. 11:50freelance graphic designer, then that particular  person is earning more than 1 million dhams in
91. 11:59a Gregorian calendar year. That means that  natural person is subject to corporate tax.
92. 12:11subject to corporate tax. If you read corporate  tax law, corporate tax law has explained natural
93. 12:18person is subject to corporate tax once the person  reach certain threshold. What is that threshold?
94. 12:26How it is? Everything is explained in the  cabinet decision. Further, the cabinet decision
95. 12:33uh explained that while calculating the 1 million  dham revenue, three things need to be excluded.
96. 12:43Three things need to be excluded. What  are all those three things? Number one,
97. 12:46wages. That means if a person,  individual who is getting salary,
98. 12:52that is not considered in this 1  million. Second thing, real estate
99. 13:02investment income.
100. 13:09Third thing personal investment income.
101. 13:19We will discuss this in detail when we are  discussing uh maybe in the fourth chapter
102. 13:24when we discuss about taxable persons but this  is just to get a initial understanding. So any
103. 13:30individual who is getting wages salary that is  not subject to corporate tax. Any individual
104. 13:38who is having some sort of investment in real  estate and that person is getting let's say
105. 13:43rental income or the person is uh selling the  property the person is getting some sort of
106. 13:48gain when the property got sold or any personal  investment. Investments can be in stocks, bonds,
107. 13:56crypto. These three things are not considered in  the 1 million threshold. Apart from these three,
108. 14:03if an individual who is getting any income from  UAE, it is considered as business activity. If
109. 14:10that particular business activity income exceeds  1 million dhams in a year, then that individual
110. 14:17is subject to corporate tax. This is what  explained in cabinet edition number 49 of 2023.
111. 14:25So the first is corporate tax law which is  federal decree law number 47 of 2022. Then
112. 14:31we need to refer what cabinet has decided on this  particular uh particular article then we will get
113. 14:39a more clarity. Now comes the third authority or  the third document which is called ministerial
114. 14:50decision. Ministerial decision we can make  it short form MD. Ministerial decision
115. 15:00mainly dealing with to understand how to.  So corporate tax law is explaining what and
116. 15:08uh who. Cabinet decision is handling  how much and ministerial decision is
117. 15:13explaining how to. Ministerial decision  is signed by ministry of finance.
118. 15:24Ministry of Finance and of course it is  signed by the Minister. Whoever is the
119. 15:29Ministry of Finance Minister that person  is signing the ministerial decision.
120. 15:36First ministerial decision published relating  to corporate tax was ministerial decision
121. 15:42number 43 of 2023 which explained who is  or who has exception from registration
122. 16:03for corporate tax. So this particular ministry  decision which was the first ministerial
123. 16:09decision which is relating to corporate tax that  explain who is not required to register. In that
124. 16:15they explained that the government entity  who are acting in the sovereign capacity,
125. 16:21government controlled entities and uh certain  other entities like you know they are not
126. 16:26required to register for corporate tax. Apart  from any the the entity which is explained
127. 16:34in ministry decision 2023 no need to register.  Apart from that, every entity has a requirement
128. 16:40to register for corporate tax. Whether they will  pay taxes or not, it's a different situation. It
129. 16:46depends on their tax position, whether they are  making profit or loss. Even if they make profit,
130. 16:52maybe if it is below 375, they will not pay taxes.  Even if they make profit above 375, still they
131. 16:59will pay no taxes. Maybe they are eligible  for 0%age tax under the free zone benefits
132. 17:04or they are eligible under the small business  relief which we discussed in the first chapter
133. 17:12but registration is mandatory. Now one more  ministerial decision we will discuss regarding
134. 17:20that u which was ministerial decision number  229 of 2025. We are going to have detailed
135. 17:31discussion about this ministerial decision  in the future session. This is just to give
136. 17:35an idea like how ministerial decision works.  Ministerial decision uh handling 229 of 2025
137. 17:42explained that 0%age tax we discussed for free  zone there are a lot of conditions which activity
138. 17:58which activities are eligible for 0%age corporate  tax. This is what explained in ministry decision
139. 18:04number 229. There are 14 activities they  have explained. Manufacturing uh processing,
140. 18:10distribution of goods or material from designated  zone, trading of qualifying commodity, holding
141. 18:15of shares. There are 14 activities. No need to  think of it now. We will discuss it separately.
142. 18:22Now this is about ministerial decision 229  of 2025. Then comes federal tax authority.
143. 18:33Federal tax authority generally issue three  documents. First document is public clarification.
144. 18:49So the federal decree law is there. Cabinet  is making some decisions on the particular
145. 18:55article of this uh corporate tax  law which further explained by
146. 19:00uh like ministry of finance through ministerial  decision. These are the three authorities and
147. 19:08the documents they published we can consider it  as a law. Anything from the federal decree law,
148. 19:15cabinet decision and ministerial decision  these three documents we can consider as a law.
149. 19:21Now whatever we are going to discuss now  onwards the documents which are issued by
150. 19:26uh federal tax authority who are not the law  makers but they are the law executors. So their
151. 19:34role is that to give more clarity practically on  uh like you know the tax law certain decisions
152. 19:42which are not clear u the federal tax authority  will come up with the further clarification
153. 19:49uh guides and all these things. Whatever  federal tax authority is publishing,
154. 19:55please make your understanding very clear that  it's not a law. It's just a clarification given.
155. 20:02Anything any kind of conflict is there, then  always the law prevail. The decree law, cabinet
156. 20:10decision and ministerial decision. Now federal  tax authority issues public clarification which
157. 20:17is for the public and this document is free. There  is no need to pay anything. It is available in the
158. 20:27public domain. If I give certain uh one one or  two public clarification just for the discussion
159. 20:35purpose. FDA had issued one public clarification  on registration deadline. So when UAE introduced
160. 20:43corporate tax like they told like all the entities  should register and the authorities specified that
161. 20:51there are certain deadlines which need to  be followed by all the entities. Now there
162. 20:58were a lot of questions if I give an example  to you in the decision it was mentioned that
163. 21:03uh uh any entity uh like which is registered  in UAE they need to follow the deadline based
164. 21:12on the trade license issuance. Now there was a  confusion that uh the trade license was not issued
165. 21:20for offshore companies. If you see any offshore  companies registered in UAE, offshore companies
166. 21:25can be registered primarily in three jurisdiction.  One is uh in Rasal Khima which is Rakai and Jabel
167. 21:33Ali offshore and Ajan offshore. They had no trade  license. Then the confusion came like because they
168. 21:39don't have trade license how to determine their  uh deadline for corporate tax registration. FTA
169. 21:46came up with the public clarification.  The second document is FDA decisions.
170. 21:57FDA publish decisions on certain aspect and they  put it in the public document and this is also
171. 22:03available for public and the document is free.  just uh give an example to you uh on the FDA
172. 22:12decision that when there were like you know the  the again the corporate tax registration deadline
173. 22:20came many companies missed the corporate tax  registration deadline and there was a penalty of
174. 22:2710,000 durhams for those who missed the deadline  there FDA came up with the decision because it is
175. 22:34the first year of tax and uh the government want  to support to the authority. FDA came up with the
176. 22:41decision that the penalty can be waved off.  Wave off penalty if the business submit their
177. 22:56first tax return
178. 23:01within 7 months. Generally the  deadline for submitting the tax
179. 23:09return and making the tax payment is 9  months. Now the FDA told if you submit
180. 23:14your first tax return not within  9 months but within 7 months then
181. 23:20this penalty of 10,000 dham will be waved  off. This is a decision published by FDA.
182. 23:29Now this is about FDA decisions and the third  document is FDA guide. FTA guide is mainly
183. 23:41giving a full clarity on certain scenario with  lot of examples, case studies they explain like
184. 23:50if if you see corporate tax law let's take  a particular uh segment which is free zone.
185. 23:58Free zone is discussed in mainly in two articles.  Now there is a cabinet decision. Cabinet decision
186. 24:06is there. I'll I'll give a holistic view on  let's let's take an example. Free zone. Free
187. 24:13zone is there are two major articles which  is in the corporate tax law. Two articles.
188. 24:21Then there is a cabinet decision published  which is cabinet decision number 100 of 2023.
189. 24:29This explained what are all the conditions for  a free zone to get 0%age corporate tax. Then
190. 24:37there is a ministerial decision. Previously  it was 265 of 2023. They canled it and they
191. 24:47came up with new ministry edition which is  229 of 2025. They added few activities into
192. 24:54the list and they got updated the document.  Then came FDA guide. Now FDA guide is like
193. 25:04you know consolidating all the federal decree  law cabinet decision and ministerial decision
194. 25:10and it's giving a full picture with a lot of  examples or uh it's it's a I think it's a 160
195. 25:18uh or 150 page document which is explaining  exclusively on the uh free zone taxation.
196. 25:30Now comes a separate document which is called  private clarification. Private clarification
197. 25:37is a facility from federal tax authority  that if any business has any particular
198. 25:43question in terms of applicability of tax  to their business. they can approach FDA
199. 25:49with that question and explain to them that  uh we are coming across such a situation and
200. 25:56uh we are not sure about how this treatment we  can do in our uh company. They can submit their
201. 26:02question and FDA will take uh certain time  to analyze and respond to the queries and
202. 26:09they will issue a private clarification. This  private clarification is only applicable to
203. 26:18that business. So it's not a public document.  If you applied a public clarification, sorry,
204. 26:25private clarification and you got a decision  from FDA, I cannot copy that decision for
205. 26:31my business. That particular decision is only  for your business and it's not a free service.
206. 26:38There is 1,500 dhams AD applicable as a fee  for any private clarification submission.
207. 26:50How you need to approach the uh entire tax  framework in a order. So first what you will
208. 26:56refer you will refer the city law which is federal  decree law number 47 of 2022. Then you will see
209. 27:05is there any cabinet decision published which  is relating to this particular article in the
210. 27:12law. Further you will see ministerial decision. Is  there any ministerial decision on this particular
211. 27:20uh like you know clarification issued by ministry.  Further you will see refer if there is any FTA
212. 27:28decision. FDA has published any decision on  uh certain aspect and FDA public clarification
213. 27:44and finally FDA guides.
214. 27:49This is the exact order when you approach the  tax uh corporate tax in UAE you need to follow.
215. 27:55It's not only for corporate tax. Even if you  are taking uh let's say VAT or excess tax,
216. 28:01you need to follow the same thing. VAT  has a federal decree law, federal declared
217. 28:09uh there is a lot of cabinet decision  relating to VAT. Ministerial decisions
218. 28:14are there. FTA decisions are there.  Uh public clarifications are there.
219. 28:19Guides are there. So any tax be it VAT,  corporate tax or excess tax these are the
220. 28:25this is the chronological order you need to  follow to read and understand the document.
221. 28:35I hope you got a better clarity on the aspect  what we are discussing. The whole idea of today's
222. 28:42uh session is to give you an understanding that  what is low, what is not a law, how to approach
223. 28:50the law, how to read the particular uh if you  get any doubt in which order you need to see.
224. 28:58Let's say if you are directly take reading uh the  guide which is published by federal tax authority
225. 29:04and making your judgment on that particular guide  it may not work. If that guide is of course on a
226. 29:13day-to-day basis you can use guide ultimately  federal tax authority is the authority who is
227. 29:20uh executing the tax law they are the like you  know they they FTA is the authority who will
228. 29:27come for audit FTA is the authority who will put  assessment so it's not that we should we should
229. 29:35ignore the documents which are published by  federal tax authority But the on the other side
230. 29:41uh this one point everyone need to keep in  mind the documents published by federal tax
231. 29:47authority is not a law. So today we will  keep it very small sweet just to give the
232. 29:55understanding about the different authority  and the document. Now in next session what
233. 30:00we are going to discuss we are going to  discuss about accounting profit versus
234. 30:18tax profit. Accounting profit versus tax profit.  We will discuss in the next chapter uh to give a
235. 30:26bit understanding what it is. Taxes are always  calculated on tax profit. When we finalize the
236. 30:35accounting for a company, what we are getting is  accounting profit. Now let's say a company has uh
237. 30:431 million in terms of revenue. They have 500,000  expense and they have 500,000 profit. This is
238. 30:53called accounting profit. Now is the corporate tax  is directly applicable on accounting profit? No,
239. 31:00it is uh applicable only tax profit. How  to arrive uh from accounting profit to tax
240. 31:08profit is the entire corporate tax. But in next  chapter what we are going to discuss is what is
241. 31:13accounting profit? What is tax profit? Uh how the  reconciliation is happening. This is what we are
242. 31:18going to discuss and uh uh as usual I'm going to  post three question in the comment box. Please
243. 31:25make sure that whatever you are understanding  you are answering to the question and let's see
244. 31:30how many of you are getting it correctly. See you  in the next chapter. Till then bye-bye take care.