Companies to comply with CBC Reporting under Corporate Tax UAE

For the implementation of guidelines set by the OECD (Organization for Economic Cooperation and Development) which is a component of BEPS (base aeration and profit shifting) for the CBCR (Country by Country Reporting) as an initiative taken by the industrial countries group. 

Multinational Entities (MNEs) Groups

For action 13 of the BEPs, the multinational group's Entities (MNEs) are under obligation to file Country by Country Reporting (CBCR) regarding corporate tax, worldwide income, profit before tax, collection of income tax, and several such other economic activity indicators present in any jurisdiction in which MNE works. 

Aim of the Country-By-Country (CBC) Reporting

The Country-By-Country Reporting aims to bridge the inadequate information between the taxpayers and the tax authorities as to where economic value is achieved within the multinational corporation and whether it is consistent with where the profits are distributed and taxes paid throughout the world. 

CBC in the United Arab Emirates

In the UAE, CbC reporting requirements apply to MNE groups with UAE headquarters starting from or after January 1, 2019. The latest was 31st 2020 under Decision No.44 of the council of 2020 to regulate reports submitted by multinational companies.

Contents of Country by Country Reporting (CBC)

A report comprises information on Multinational Entities Groups both qualitative and quantitative data for instance gross profit, number of employees, detail of business etc. must be reported under three tables:

• Table I: it contains quantitative information per tax jurisdiction such as the income of a party third party and a related party, stated capital, accumulated and paid taxes, number of employees, etc.
• Table II: it includes standard information about important business activities during the year.
• Table III: is comprised of the extra necessary information for a better understanding of tables one and two for instance details regarding data source, exchange rate etc.

Criteria For Business Groups to Comply with CBC Reporting Law

The headquarter group of UAE that meets the following criteria must comply with the CBC reporting legislation in UAE

• Multinational entities(MNE) groups are formed with the association of two and more resident business entities having different jurisdictions for the taxation purpose with the Context of this definition. 
• The total gross income for the financial year before the relevant reporting year is equal to or above AED 3.15 billion.

For instance, by the end of 31 December 2019, on the gross income of Multinational Entity Groups for the financial period by end of 31s December 2018.

Case 1: -  The total income of Multinational Entity Groups for the financial period by end of 31s December 2018 was AED 3.15 billion While meeting the threshold of income for the reporting year 2019 under the criteria of CBCR, the Multinational entities(MNE) groups were required to implement the reporting legislation set for CBCR purpose in the United Arab Emirates for 2019 reporting year. 

Case 2: -  The total income of Multinational Entity Groups for the financial period by end of 31s December 2018 was AED three billion (3000,000,000) While not meeting the threshold of income for the reporting year 2019 under the criteria of CBCR, the Multinational entities(MNE) groups were not required to implement the reporting legislation set for CBCR purposes in the United Arab Emirates for the 2019 reporting year. 

While not meeting the income threshold for the reporting year 2019 under the criteria of CBCR, the Multinational entities(MNE) groups were not required to implement the reporting legislation set for CBCR purposes in the United Arab Emirates for the 2019 reporting year. 

It will be translated into the functional currency stated by the MNE group. The year's average exchange rate should be used for a currency change.

The applicable rates are required to be described in Table three for Additional Information in respect of Country by Country Reporting.

Read more: What are the Corporation Tax Implications of the Transfer Pricing Rules?

Legislative procedure for noncompliance

For noncompliance to CBCR, there are prescribed penalties, against these penalties legal process has been given as mentioned below: -

• MOF identify the non- compliance 
• MOF notify the entity by providing fourteen days to comply with the process
• Upon non-compliance penalty, notice will be served
• The entity has to option either to pay the penalty or to file an appeal within the prescribed period
• The Ministry of Finance Committee either accepts or rejects the appeal within two months.
• On rejection of the appeal, the penalty is required to pay within 30 working days

Country by Country Reporting regarding information of Permanent Establishment “Language” and “Information”

The data of Permanent Establishment (PE) is required to be reported in respect of the location of tax jurisdiction and not in relation to the tax jurisdiction of the entity in which the property tax information is located which is a PE should exclude the financial information regarding the business place, for instance, United Arab Emirates is a subsidiary of a UK company, the CBC report should show related key figures i.e. profits, liabilities, and other indicators to the United Kingdom. The data for the company in the United Arab Emirates is to be provided after the information on the UK branch has been published.

Avail of the services of top tax consultants in the UAE

It is essential for taxable persons to avail the services of top tax consultants in the UAE to have an in-depth understating of the implementation of CBC and to stay compliant with the UAE tax law and standards. Thus, contact us today and we shall be happy to assist you. 

Ahmad Al Zain

Ahmad is an accomplished legal associate with more than 5 years of experience, he is adept in navigating the complex tax codes at federal, state and local levels. He has an immense aptitude for conducting tax investigations and tax litigation. He is well-versed in offering expert tax advisory and handling tax arbitration procedures in international and local jurisdictions. Further, he has comprehensive expertise in drafting a wide scope of tax documents and negotiating intricate tax disputes with the Federal Tax Authority.