The Federal Tax Authority (FTA) has made several types of elections available for businesses to choose from, depending on their situation. These elections offer flexibility and, in some cases, even relief from tax, but they must be selected carefully and appropriately submitted. Here’s a breakdown of the types of elections available under the UAE CT regime.
You can ask Tax Gian, one of the best corporate tax consultants in UAE, how and when to make elections according to your business requirements.
1. Realisation Basis Election (Irrevocable)
This election is for businesses that prepare their financial statements on an accrual basis. If they choose this option, they can report gains and losses only when something is actually sold or a liability is paid, not just when values go up or down on paper.
The choice must be made on the first tax return. Once selected, it applies to all future years and cannot be changed unless the FTA gives special permission. This election is not available for those using the cash basis of accounting.
2. Transitional Rules Election (Irrevocable)
This election helps companies adjust when switching to the CT regime. It allows businesses to exclude profits from certain assets and liabilities owned before the first tax year, if those assets are later sold.
It applies to items recorded at historical cost, meaning the original purchase value, not current market value. This election must also be made in the first tax return and can’t be changed later unless allowed by the FTA. It’s not available if the business is using the cash basis of accounting.
3. Small Business Relief Election (Revocable)
This is meant to support smaller businesses. If a company makes AED 3 million or less in a tax year and in all previous tax years, it can apply for Small Business Relief.
If granted, the business won’t need to calculate taxable income or pay any corporate tax for that year. It also simplifies the tax return form. This election has to be made every year, but is not allowed for companies that are part of a large multinational group or a Free Zone business that already has special tax rules.
Small businesses can consult tax consultants in UAE to take full advantage of SBR in UAE.
4. Qualifying Group Transfer Election (Irrevocable)
If two companies are part of the same qualifying group, they can transfer assets and liabilities between each other without triggering tax on those transfers.
This helps companies reorganise without tax penalties. The transferring company must elect for this benefit on the tax return. Once selected, it will apply to future transfers within the group automatically unless the FTA approves a change.
5. Business Restructuring Relief Election (Revocable)
This is for companies going through changes like mergers, demergers, or restructuring. If certain conditions are met, they can apply to ignore the tax impact of such changes.
The company making the transfer must submit the election each time it applies to a new restructuring event. This choice does not cover future restructuring automatically. Each case must be handled separately in the tax return.
6. Foreign Permanent Establishment Exemption (Revocable)
Companies with branches or PEs outside the UAE can elect to exclude their foreign income and expenses from the UAE CT calculation.
To qualify, the foreign branch must pay a tax similar to the UAE’s corporate tax at a rate of at least 9%. This election is made once per year and only applies if the conditions are met. If chosen, the company will leave out all earnings and costs from its foreign operations when calculating its UAE tax.
How Are Elections Made?
All these elections are part of the tax return form. When a business fills out the form, it will be asked about each option that applies to them. Some elections may not show up in the form if they’ve been used already or if the business does not qualify.
Once an election is selected in the tax return, no additional approval or confirmation is needed from the FTA; it becomes valid immediately. However, some elections come with extra questions or sections to complete.
It is better to seek help from a corporate tax consultant in UAE to avoid any incorrect actions during the tax return filing process.
Key Points- Many elections are irrevocable; once made, they cannot be undone, unless the FTA agrees under special circumstances.
- Elections tied to the first tax period cannot be made later.
- Annual elections like Small Business Relief or the Foreign Branch exemption must be renewed every year.
- Seeking tax consulting services in Dubai saves you from making costly mistakes in the filing process.
