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Unincorporated business vs incorporated business (Corporate Tax Implications)
Here’s a concise comparison of liability between unincorporated and incorporated businesses:Unincorporated Business (e.g., Sole Proprietorships and Partnerships, Civil Company)Personal Liability: Owners are personally liable for all debts and legal obligations of the business.Risk to Personal Assets: Personal assets (house, car, savings, etc.) are at risk if the business cannot meet its obligations.Corporate Tax Registration: The partners in an Unincorporated Partnership that is not treated as a Taxable Person must appoint one of the partners to be the authorised partner to act on behalf of all the partners in any tax obligations and procedures. The authorised partner shall be required to do the following: 1. Submit an application to the Authority to register the Unincorporated Partnership for purposes of Corporate Tax in accordance with the forms specified by the Authority in order to obtain a Tax Registration Number. 2. Submit an annual declaration on behalf of all the partners in the Unincorporated Partnership within a period not exceeding (9) nine months from the end of the relevant Financial Year of the Unincorporated Partnership or part thereof Where the Authority approves the application submitted by the partners for the Unincorporated Partnership to be treated as a Taxable Person , the Unincorporated Partnership that is a Taxable Person must comply with the provisions of the Corporate Tax Law.The partners of Unincorporated Business can also elect to be taxed as natural persons individually if their revenue from all business sources (except income from salary, personal investment, real estate income) is 1m or above, then each partner will be register under corporate tax and do compliance of corporate tax law provisions. The same rule will apply to sole establishments and natural persons.Incorporated Business (e.g., Corporations, LLCs)Limited Liability: The business is a separate legal entity, shielding owners from personal liability for most business debts and legal issues.Risk to Business Assets: Only the assets owned by the business are at risk, protecting the owner’s personal assets in most cases.Corporate Tax Registration : All LLC companies are required to register under corporate tax and do compliance of corporate tax law provisions.
Free Zones Vat Treatment
There is a list of designated freezones. Only supplies of goods made between these designated freezones will be outside scope of UAE Vat.Supplies of services (except shipping and delivery services in designated zones subject to certain conditions) whether they are in normal freezone or designated freezones are subject to normal UAE vat laws means they will be taxableThe goods supplied between designated freezones, if used as end user or consumed, then these goods will be subject to normal UAE vat laws means they will be taxable. If the goods that are supplied between designated freezones, are used in the assembly or production of other goods in the same designated freezone, and those goods will be sold (should not be consumed )after production, then these supplies of goods will be subject to outside scope of UAE Vat.If the goods are transferred from outside UAE to designated zone, it will be outside scope of UAE Vat.If the goods are transferred from designated zone to UAE mainland, it will be import for UAE mainland recipient (even for tax group)Water and Energy (like Dewa) supplied in designated zone will be treated as taxable supply even it is used for productionOil, Gas supplied in designated zone, general rules will apply for designated zones suppliesReal Estate: If property is sold or leased out in designated zone , it will not treat as consumption. It will be treated as outside scope of UAE Vat. If raw material purchased from designated zone for construction of property in designated zone, it will be outside scope of UAE Vat. If property is not supplied by way of sale or lease, it will be treated as taxable supply. Tax group can be formed between designated zone companies and UAE mainland company (referred as onshore company) if these companies satisfies normal criteria for control. List of Designated FreezonesDesignated Zones Abu Dhabi Effective السريان المناطق المحددة إمارة أبو ظ . يب No. To إلى From من م1 Free Trade Zone of Khalifa Port 01/01/2018 منطقة التجارة الحرة لميناء خليفة 12 Abu Dhabi Airport Free Zone 01/01/2018 المنطقة الحرة بمطار ابوظ.ب 23 Khalifa Industrial Zone 01/01/2018 منطقة خليفة الصناعية 34 Al Ain International AirportFree Zone 18/06/2018 المنطقة الحرة بمطار الع ن
Understanding the UAE VAT Capital Asset Scheme: A Simple Guide
If you’re a business owner in the UAE, you’ve likely heard about VAT (Value Added Tax) and its various rules. One of the more complex aspects of VAT is the **Capital Asset Scheme**. This scheme is designed to ensure that businesses adjust their VAT recovery on large capital assets over time, based on how those assets are used. In this blog, we’ll break down the Capital Asset Scheme in simple terms and provide practical examples to help you understand how it works.What is the Capital Asset Scheme?The **Capital Asset Scheme** is a VAT adjustment mechanism that applies to large capital assets purchased by businesses. It ensures that the VAT recovery on these assets is adjusted over several years, depending on how the asset is used. This is important because the way an asset is used (for taxable or exempt purposes) can change over time, and the scheme ensures that VAT recovery reflects this.Key Points:- **Capital Assets** are items like buildings, machinery, or equipment that cost **AED 5,000,000 or more** (excluding VAT) and have a useful life of at least **10 years for buildings** or **5 years for other assets**.- The scheme requires businesses to adjust their VAT recovery over the asset’s useful life, based on its actual use.How Does the Capital Asset Scheme Work?When a business buys a capital asset, it can usually recover the VAT paid on the purchase in the same VAT period. However, if the asset is used for both taxable and exempt activities, the VAT recovery needs to be adjusted over time. This is where the Capital Asset Scheme comes into play.Step-by-Step Process:1. **Initial VAT Recovery**: When the asset is purchased, the business can recover the VAT based on its initial use. For example, if the asset is used 50% for taxable activities, the business can recover 50% of the VAT.2. **Annual Adjustments**: Over the asset’s useful life (10 years for buildings, 5 years for other assets), the business must review how the asset is used each year. If the usage changes (e.g., from 50% taxable to 40% taxable), the business must adjust the VAT recovery accordingly.3. **Final Adjustment**: If the asset is sold or disposed of before the end of its useful life, the business must make a final adjustment based on the sale.
PROFIT MARGIN SCHEME
This scheme applies to used tangible moveable goods (that can be used further), antiques (more than 50 years) and collections (stamps, coins, currency notes, scientific and archeological goods)To calculate registration threshold, consider full sales value, not the profit margin only. Example: if MR. A has total used mobiles sales during past three months is AED 400K and his profit margin on these sales is only 25k then he is immediately liable to register as it crosses mandatory vat registration threshold limit of AED 375K. Therefore, ignore the profit margin amount while calculating vat threshold for vat registration.Vat will be inclusive of profit margin.ExampleIf Mr A purchase used mobile from unregistered person . The figures are given below:Mobile purchased price: 5000Mobile sale price: 5500Profit: 500Vat under profit margin Scheme: (500/1.05= profit exc. vat476.19) (vat=476.19*5%=23.81) (profit inc vat=476.19+23.81=500)Vat Return Disclosure:Box no 1 : Net sales : 5500 Vat: 23.81Box no 9: Purchases : 5000 Vat: 0 (Even you pay vat , but its not allowed to recover under profit margin scheme.In vat return (have you used profit margin scheme question, Please select option ‘’yes’’ in vat return )Eligible Goods Criteria:The goods should be purchased from unregistered person orThe seller of goods is operating under profit margin scheme andInput vat on goods is not claimed by the seller if he is selling those goods under profit margin scheme.The stock of goods purchased before vat implementation date is not eligible for this scheme. The eligible goods will be, if it is purchased after 1 jan 2018 and buyer should make sure that the seller who is selling these goods also have purchased these goods after 01 jan 2018.The goods should be subject to taxable suppliesRecords:Maintain stock register that shows sale and purchase record of inventory sold under this schemeKeep record of purchase and sales invoicesIf goods are purchased from unregistered seller, then buyer is responsible to make purchase invoice by himself that will include following:1.Seller details like name, address etc2.Buyer details like name, address, TRN etc3.Date of purchase4.Detail of items purchased5.The purchase invoice should be signed by the seller or his authorized signatory.Sale Invoice:It should be specifically written on the sales invoice that this invoice is prepared under profit margin scheme as vat amount will be lowRemaining contents of sales will be same as normal tax invoice
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