q2: the meaning its the tax that you pay straight to the gov from your profit this the direct

example: uae pay 9% if there profit more 375,000

this tax add to the price of good and service , you pay when u buy thing

example: 5% add like restaurant

q3: collect and recive tax

auditing and inspecting

q4:Tax avoidance is legal.

• Tax evasion is illegal.

Q12)Direct taxes are paid straight to the government on income or profit, like the Corporate Tax (9% on company profits). Indirect taxes are paid when buying goods or services, and businesses collect them on behalf of the government, like VAT (5%) and Excise Tax on tobacco or energy drinks. The key difference is direct taxes affect income, while indirect taxes affect spending.

Q13) The Federal Tax Authority (FTA) has the power to register businesses for taxes, collect tax money, check company records, and do audits. It can also give tax guidance, apply fines if rules are broken, and help solve disputes. In short, the FTA makes sure taxes are managed and enforced properly in the UAE.

Key Facts:

Activity Conducted: Investment Fund Management (a Relevant Activity under ESR).

Location: DIFC (a UAE free zone).

Clients: Global (not limited to UAE).

Operations:

·       5 full-time employees based in DIFC.

·       Physical office in DIFC with operational infrastructure.

·       Board meetings held in Dubai.

Required:

(a)    Is ABC Ltd. subject to the UAE’s Economic Substance Regulations (ESR)?

(b)   What if ABC Ltd. had only 1 part-time employee and a virtual office?

(c)    Would ABC Ltd. still need to comply if all clients were outside the UAE?

(d)   What penalties could ABC Ltd. face if it fails to comply?

• No R&D team in the UAE (development is outsourced to India).

• No full-time UAE employees (only a registered agent).

• No physical office (uses a virtual desk in RAK).

Required:

(a)    Is Tech Innovations Ltd. subject to ESR, and does it meet the Economic Substance Test?

(b)   What if Tech Innovations hired 2 UAE-based developers?

(c)    Would registering patents in the UAE help?

(d)   Could it restructure to avoid ESR?

Key Facts:

• Activity Conducted: Shipping (a Relevant Activity under ESR).

• Location: JAFZA (UAE free zone).

• Operations:

• 3 full-time employees in Dubai (management, logistics).

• Ships registered under the UAE flag but operated by a third-party crew.

• Most contracts are signed in Dubai, but day-to-day ship operations are managed remotely.

Required:

(a)    Is XYZ Shipping LLC subject to the UAE’s Economic Substance Regulations (ESR)?

(b)   What if XYZ Shipping had 20 employees in Dubai managing all operations?

(c)    Would UAE-flagged ships alone satisfy ESR?

(d)   What penalties could apply if XYZ Shipping fails ESR?

• 50 employees in DIFC.

• A physical office.

• Local risk management and compliance teams.

Required: Does it meet ESR requirements?

• 10 employees.

• A JAFZA warehouse.

• Sales contracts signed in Dubai.

Required: Is it subject to ESR?

(c) If all clients are outside UAE? Yes, ESR applies regardless of client location.

(d) Penalties for non-compliance? Administrative fines AED 10,000–50,000+, plus reputational and regulatory risks.

It is a licensed company registered in the DIFC.

It is not exempt, since it operates globally.

It is managed in the UAE – board meetings are in Dubai, it has 5+ employees, and a physical office with infrastructure in DIFC.

• Yes.

• It does Investment Fund Management, which is a Relevant Activity.

• So, it must follow ESR rules.

1. Did ABC Ltd. need to comply with ESR?

Yes, because consultancy is a relevant activity under ESR.

2. If it failed the EST, what steps should it take?

• Show work done in UAE (staff, office, or outsourcing).

• Keep records of activities.

• File ESR report with explanation.

3. Penalty if missed reporting deadline?

• AED 20,000 → if Notification not filed.

• AED 50,000 → if Report not filed or late.

subetence test

Submit report on time

Managed in UAE

Office ، employees ، expenses

Keep records

2-Submit the ESR notification every year.

3-Make sure the company has enough substance in the UAE (staff, office, expenses, meetings).

4-File the ESR report if the company earns income from relevant activities.

5-Keep records and proof to show compliance if asked.

2-Verify whether ESR regulations are relevant or if any exemptions apply.

3-Submit the ESR notification promptly.

4-If necessary, submit the ESR report.

5-Maintain documentation and proof to demonstrate adherence

• Every company must submit it yearly, even if they don’t have relevant activities.

• Check for Relevant Activities

  • See if your business does things like banking, insurance, shipping, or intellectual property.

• Submit Detailed ESR Report (if needed)

  • Only if you have relevant activities. Show how the company meets the rules.

• Show Economic Substance

  • Make sure main business activities happen in the UAE.

  • Have enough staff, money spent, and management in the UAE.

• Keep Records for 6 Years

  • Save all documents to prove compliance if asked

a) ESR Compliance steps for 2022:

1. File ESR Notification to the Ministry of Finance.

2. Prepare and submit the ESR Report for 2022.

3. Maintain documentation to show activities, income, and expenses related to the IP business.

b) Economic Substance Test (EST) for IP Holding Business:

• XYZ Tech earns income from software licensing (IP-related).

• Since R&D is outsourced and it only has 3 staff managing contracts, this may not be enough for a High-Risk IP Business (where core IP functions should be conducted in the UAE).

• Therefore, it is unlikely to meet the EST, unless it can prove UAE-based decision-making and adequate control over outsourced R&D.

o qualifies as an Intellectual Property (IP) Business.

2. Notify the Regulatory Authority

o File Economic Substance Notification with the UAE Ministry of Finance

o Keep documentation to demonstrate:

 Directed and managed in the UAE

3. File Economic Substance Report

Jao Company will be treated as a UAE Tax Resident under UAE Corporate Tax law because its effective management and control are exercised in the UAE by Mr. Jao.

Ex4:

DK Company is a UAE tax resident for Corporate Tax purposes because the board of directors, residing in the UAE, makes key management and commercial decisions there, albeit under the influence of Mr. DK. The absence of a DTA means potential double taxation exposure.

Final Corporate Tax Return The company must file its final tax return for the last tax period (1 January 2025 – 31 December 2025).

 Payment of Outstanding Liabilities The company must pay all corporate tax due, including any penalties or interest.

Clearance from FTA Deregistration will only be approved once the FTA is satisfied that there are no pending tax liabilities.

 Corporate Tax due for 2025 Tax is 0% on the first AED 375,000 of taxable income and 9% on the rest.

2. Under what conditions can tax losses be transferred between companies within a qualifying group in the UAE?

3. How does a change in shareholder ownership affect the ability to carry forward historical tax losses in the UAE?