Consolidating Local Government Businesses as a Single Taxable Person

Article 5 of the UAE Corporate Tax Law states that all business activities conducted by local government bodies are deemed as one taxable person. As the taxation system in the UAE is changing constantly, the consequences are critical for the local government spheres. An important evolution in this sphere is the Ministerial Decision No. 68 of 2023 issued by the Ministry of Finance of the UAE as a detailed regulation of the circumstances under which the local government businesses and activities can be registered as a single taxable individual. In this comprehensive guide, the conditions seen in this Ministerial Decision will be described along with the tax implications that may be incurred on local government activities.

Conditions for treatment as one taxable person

According to the Ministerial Decision, several conditions must be met for a local government entity to be considered as a single taxable person. The above-mentioned conditions are laid down to promote the much-needed transparent, legal, and efficient tax system.

All businesses and activities that are related to the application.

One of the key requirements to apply for recognition as a single taxable person is the cover up of all businesses and activities within the local government entities. This means that activities are required to be disclosed, and the fact that it is not limited to any specific size and type of business means that everything has to be recorded. Thus, the holistic incorporation prevents any piece of information regarding the operations of the local government’s business from lacking the tax authority’s attention, making it easier to employ the right taxes and see to it that every one of them is complied with.

Valid License to Carry Out Businesses Activities 

Every kind of business and activity performed by the local government entities should be run under a license from a recognized licensing authority. This condition brings the aspect of legality and legitimacy in business into focus. This makes sure that all the activities that are being carried out are legal as per the license agreements that are aIso preferred regarding taxes.

Same Emirate Business Activities: -

Having all business activities within the same emirate is a geographic limitation that assists the government in tracking the particular business activities to complete and all others, thus facilitating a much easier process of taxation for the authorities since all the business undertakings are well captured in the specified region.

Read more: Corporate Tax Relief for Small Businesses in UAE

Deemed as one ‘taxable person’ 

The application for the purpose of treating a local government entity as one ‘taxable person’ has to be made by a designated ‘representative’ local government entity. In this capacity, this representative offers technical and administrative liaison between the taxman and the organization’s hierarchy. This is because the organization is better off avoiding confusion and all the information flows as well as compliance issues are controlled in one main representative.

Representative appointment For Local Government Entity

Tax authority must be informed regarding whether the entity is obliged to meet all liabilities stated under the Corporation Tax Law and the Ministerial Decision. Communication in relation to this appointment makes it easy for the tax authority to identify the responsible person for tax compliance hence effective enforcement of the tax laws.

Substitution of the Local Government Entity (RLGE)

When the representative of some local government entities wants to be replaced, they can do it by applying at the tax authority where it will not interrupt the treatment as a single taxable person. Such flexibility makes, for instance, it easier for local governments to update their representation as they continue to exist as one taxable 

entity. These provisions are very important for establishing continuity in tax treatment and for compliance.

Notification of New Businesses/Activities

If the local governing body starts any new business or activities falling under the provisions of Clause 1 of the aforesaid Ministerial Decision, it has to report the same to the tax authority within twenty business days. This notification is sent in a timely manner making sure that all the new activities get integrated into the single taxable person regime thus maintaining compliance and avoiding penalties that may be associated with it.

Withdrawal of Single Taxable Person Regime

Local government entities can be treated as a single taxable person only under certain conditions can treatment be stopped. First of all, it is necessary to note that the above-said measure applies only in the case of the representative local government entity’s application to the tax authority for permission to stop the treatment and receipt of such permission. In that case, the entities formed would not be regarded as a single taxable entity anymore, thus requiring a different treatment in terms of tax.

FREQUENTLY ASKED QUESTIONS

What are the criteria to qualify the local government entities as one taxable entity?

The main conditions include:

• Duplication of all sectors and undertakings and the consequent inclusion of all businesses and activities in the application.
• Carrying out business and other activities in the licensed area.
• Conducting activities in the same emirate.
• Conveying the application by an officially accredited local governing body.
• Proper communication to the tax authority of the appointment of the representative.
• Paving way for a change of the said representative without affecting the single taxable person status.
• Notification of the commencement of new businesses and activities to the tax authorities on time.

Why local government entity must have a representative to be as single taxable person treatment 

It is important for a firm to have a representative local government entity for several reasons. This way, at least one representative entity in the local government is addressed as the party that communicates and deals with the authorities designated for taxes. This aids in preventing the occurrence of confusion and guarantee that all the information and the regulatory procedures are well kept.

Can the representative local government institution be substituted?

Yes, local government entities may apply for the change of the person’s representative to the tax authority while retaining the status of a single taxable person. This flexibility means that representation can be changed as necessary and yet there is consistency in the tax treatment and in compliance.

What is required to be done by the local government for new businesses or activities?

All new business or activities that have to be addressed under Clause 1 of the said Ministerial Decision must be declared to the tax authority within twenty business days. This way, all newly emerged activities are promptly brought under the single taxable person regime which is compliant with the standards and will not trigger any penalties.

In what conditions can the applicability of the single taxable person treatment be stopped?

As for the limitation of the treatment, a representative local government entity can apply to the tax authority for the suspension of the treatment; or the treatment will be stopped if the conditions prescribed in Clause 1 of the Ministerial Decision no longer exist. In such instances, the entities would not be taken as a single taxable entity, and therefore, they would have to go through a different method of tax treatment.

In what way can tax consultants be of assistance when it comes to these regulations?

Hiring tax consultants of the UAE can be very useful in achieving the best strategies for deploying some taxes as well as compliance of the company with certain rules and regulations on taxes. They assist local government entities in integrating into a single taxable person framework as well as observing the UAE corporate taxes’ compliance. Cooperation with external experts from the field of tax consultancy can improve the situation with taxes and help to develop a proper taxation system.

Conclusion: -

 The latest corporate tax law UAE offers guidance to the local government entities to qualify for a single taxable person. These conditions are important to guarantee that all business actions are legal and properly reported within the framework of tax laws. In relation to local government entities, it is very advisable to involve professional tax consultants in UAE to help in dealing with the aforementioned requirements. These professionals can help to a great extent to improve the work on the application of correct and perfecting corporate tax strategies and compliance with existing legal and regulatory acts. Consulting with a professional tax consultancy firm will enable the local government structures to adapt into the structure of a single taxable person and adhere to the laws of the UAE corporate tax

8. Cessation of single taxable person treatment

The treatment as a single taxable person under Clause 1 of this Article shall cease in certain circumstances. Firstly, if the representative local government entity applies to the Authority for approval to cease the treatment as a single taxable person and it is granted. Secondly, if the conditions under Clause 1 of this Article are not met, leading to a failure to meet the criteria for a single taxable person

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Taxable persons should seek the services of Tax Consultants UAE to seamlessly implement corporate tax strategies and to stay compliant with corporate tax UAE regulations and standards. Thus, contact us today and we shall be glad to assist you.