The United Arab Emirates (UAE) government is actively promoting Emiratisation, a strategic initiative to increase the number of Emirati nationals employed in the private sector. This policy aims to create a more balanced and robust workforce while fostering Emirati participation in the nation’s economic growth.
What are the Emiratisation Targets?
The Emiratisation targets outline the expected percentage of Emirati nationals a private company should have within its workforce. These targets are gradually increasing, with the ultimate goal being 10% Emirati representation by the end of 2026.
Key Dates and Deadlines:
As of July 1, 2024, the UAE government is assessing private companies with 50 or more employees for their compliance with the first-half Emiratisation targets for 2024. These targets mandate a 1% increase in the number of Emirati employees compared to the workforce at the beginning of the year.
Failing to meet these targets comes with consequences:
- Fines: Companies face a fine of Dh8,000 per month for each Emirati national they fall short of hiring. These fines are cumulative and will increase by Dh1,000 annually until 2026.
- Compliance Measures: The Ministry of Human Resources and Emiratisation (MoHRE) conducts regular inspections to ensure companies are adhering to the Emiratisation targets.
Strategies for Meeting Emiratisation Targets:
Companies can adopt several strategies to achieve their Emiratisation targets:
- Recruiting Qualified Emirati Candidates: Identify and attract qualified Emirati candidates by advertising vacancies on platforms frequented by Emirati job seekers or collaborating with universities and Emirati professional organizations..
- Upskilling and Training: Enhance the skills and qualifications of existing Emirati employees to broaden their career options within the company.
- Flexible Work Arrangements: Consider offering flexible work arrangements or remote work options to attract Emirati talent seeking a work-life balance.
- Nafis Program: Leverage the Nafis program, a government initiative providing a digital platform that connects companies with qualified Emirati job seekers across various specializations
Benefits of Meeting Emiratisation Targets:
Meeting Emiratisation targets fosters several advantages for companies:
- Compliance and Avoiding Fines: Companies adhering to the targets avoid hefty fines and potential legal repercussions.
- Enhanced Brand Reputation: Demonstrating a commitment to Emiratisation can positively impact a company’s brand image and attract top Emirati talent.
- Diverse and Skilled Workforce: A diverse workforce with Emirati nationals brings a unique perspective and understanding of the local market, fostering innovation and stronger connections with Emirati customers.
Compliance with Emiratisation Regulations:
The MoHRE takes compliance with Emiratisation regulations seriously. Companies found engaging in “fake Emiratisation” practices, such as hiring Emiratis for nominal jobs without any real responsibilities, face severe consequences:
- Fines: Hefty fines ranging from Dh20,000 to Dh100,000 per case can be imposed.
- Downgraded Company Rating: Companies may be downgraded within the MoHRE system, potentially impacting their ability to secure contracts or visas.
- Legal Action: In severe cases, companies may face legal action from the Public Prosecution.
- Emiratisation Financial Contributions: Companies could be required to pay additional financial contributions to support Emiratisation initiatives.
Resources like the Nafis program and support from professional service firms like Aey Accounting can help companies navigate these regulations and achieve their Emiratisation goals.
What is a Tax Group?
A tax group in the UAE is a corporate structure where two or more companies are treated as a single taxable entity for corporate tax purposes. This means that the group files a consolidated corporate tax return, and the profits and losses of all members are combined to determine the overall tax liability.
Benefits of Forming a Tax Group
- Loss Utilization:One of the primary benefits of forming a tax group is the ability to offset losses of one group member against the profits of another. This can significantly reduce the overall tax liability of the group.
- Administrative Efficiency:By filing a single consolidated tax return, businesses can streamline their tax compliance processes, reducing administrative burdens and costs.
- Transfer Pricing Elimination:Intragroup transactions are eliminated, thereby reducing the complexity and costs associated with transfer pricing documentation and compliance.
- Cash Flow Optimization: Effective tax planning through a tax group can help optimize cash flow by deferring tax payments or maximizing tax refunds.
Conditions for Forming a Tax Group
To form a tax group, the following conditions must be met:
- Common Ownership:A common ownership must be alteast 95% of the shares of all group members directly or indirectly.
- Control:One group member must have control over the other group members.
- Permanent Establishment:All group members must have a permanent establishment in the UAE.
- Voluntary Election: All group members must agree to form a tax group and submit a joint application to the Federal Tax Authority (FTA).
How Tax Groups Work
Once a tax group is formed, the profits and losses of all members are combined to determine the group’s overall taxable income. The group files a single consolidated tax return, reporting the combined income, expenses, and tax liability.
The FTA allocates the group’s tax liability among the group members based on an agreed-upon formula or allocation key. This ensures that each member bears its proportionate share of the tax burden.
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Procedure for Filing a Tax Group in the UAE:
Eligibility Assessment:
- Determine if your group meets the eligibility criteria: common ownership, control, permanent establishment, and mutual agreement.
- AEY Accounting LLC can conduct a thorough assessment to verify your group’s eligibility.
Group Formation Agreement:
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- Draft a comprehensive group formation agreement outlining the terms and conditions of the group. This agreement should cover:
- Ownership structure
- Control mechanisms
- Profit and loss sharing
- Decision-making processes
- Dispute resolution
- AEY Accounting LLC can assist in drafting this agreement.
Appoint a Tax Representative:
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- Designate a tax representative responsible for handling the tax group’s affairs with the Federal Tax Authority (FTA).
- AEY Accounting LLC can act as your tax representative.
Obtain Tax Registration Numbers:
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- Ensure all group members have valid Tax Registration Numbers (TRNs).
Prepare the Tax Group Application:
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- Complete the FTA’s tax group application form, providing detailed information about the group members, ownership structure, and control relationships.
- AEY Accounting LLC can assist in preparing the application.
Supporting Documentation:
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- Gather the necessary supporting documents, including:
- Group formation agreement
- Shareholding certificates
- Organizational charts
- Financial statements of group members
- AEY Accounting LLC can help in organizing and preparing the required documents.
Submit the Application:
Submit the completed application form and supporting documents to the FTA.
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- AEY Accounting LLC can handle the submission process on your behalf.
FTA Approval:
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- Await approval from the FTA, which may take some time.
Consolidated Tax Return:
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- Once approved, prepare and file a consolidated tax return for the group.
- AEY Accounting LLC can assist in preparing and filing the consolidated tax return.
Potential Challenges and Considerations
- Complexity:Forming and managing a tax group can be complex, requiring careful planning and administration.
- Restrictions:There are specific rules and conditions governing tax groups, and non-compliance can lead to penalties.
- Exit Strategy:Businesses should consider an exit strategy when forming a tax group, as there are specific procedures for leaving a tax group.
- Transfer Pricing:While transfer pricing issues are generally eliminated within a tax group, it’s essential to maintain appropriate documentation and transfer pricing policies for transactions with third parties.
Conclusion
Tax groups can offer significant benefits to businesses operating in the UAE, but they also involve complexities and responsibilities. Careful planning and consideration of the specific circumstances of each business are crucial to determine whether forming a tax group is the right decision.
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