UAE New Tax Regulations

The new tax regulations in the UAE, specifically the introduction of Corporate Tax (CT), have indeed impacted the use of RAK ICC (Ras Al Khaimah International Corporate Centre) companies, especially regarding their taxation and reporting obligations. While RAK ICC companies were traditionally used for offshore purposes with limited reporting requirements, recent changes have altered some of their obligations, especially around corporate tax, accountancy, and compliance.

The rate has been established at 9% and applies to taxable income exceeding AED 375,000, consistent with the earlier announcement by the Ministry. This ensures that the UAE’s Corporate Tax framework remains one of the most competitive globally, further reinforcing the nation’s status as an international financial and business center.

For RAK ICC companies that derive all of their income from activities outside the UAE, such income remains generally exempt from UAE Corporate Tax.

Free Trade Zones – the UAE intends to honor its commitment to businesses registered in Free Trade Zones to the extent that such businesses do not conduct business with mainland, shall be subject to zero percent tax (or be exempt as the case may be) until the end of the holiday period. All free zones have to file an annual CT return.

Key Changes for RAK ICC Companies

Corporate Tax (CT) Introduction

As of June 1, 2023, the UAE introduced Corporate Tax (CT) at a rate of 9% on taxable income exceeding AED 375,000.

RAK ICC companies, which are often set up for offshore activities and generate income outside of the UAE, were traditionally exempt from corporate tax. However, under the new regulations, they must assess whether their operations fall within the scope of UAE Corporate Tax.

RAK ICC and Taxable Income

Income generated exclusively overseas: For RAK ICC companies that derive all of their income from activities outside the UAE, such income remains generally exempt from UAE Corporate Tax.

UAE-sourced income: If a RAK ICC company starts earning income within the UAE or through business operations that are sourced from the UAE, this income would likely be subject to Corporate Tax at the 9% rate.

Even if RAK ICC companies only have foreign-sourced income, they may still need to ensure compliance with reporting requirements to confirm their exemption.

Tax Registration

Corporate Tax registration: All businesses in the UAE, including RAK ICC companies, are required to register for Corporate Tax if they fall under the scope of the Corporate Tax regime.

However, if a RAK ICC company can demonstrate that it only earns foreign-sourced income and does not engage in UAE-sourced business, it may not need to pay corporate tax but might still need to register and file a nil return annually to maintain compliance.

Accounting and Record Keeping

Accounting obligations: RAK ICC companies, even if they are not subject to corporate tax, now face enhanced accounting and record-keeping obligations. This is a shift from previous practices where many offshore companies did not need detailed accounting or auditing.

Maintenance of proper books of accounts is now required to ensure transparency and compliance with UAE tax laws. Companies must prepare financial statements in accordance with the accounting standards, such as IFRS (International Financial Reporting Standards).

Auditing: Although audited financial statements may not be required for all RAK ICC companies, some jurisdictions within the UAE may require audits depending on the business activity and regulatory framework.

Monthly accounting: While monthly accounting may not be mandatory for all RAK ICCs, proper financial record-keeping and periodic (at least annual) accounting are essential for complying with the corporate tax filing requirements and Economic Substance Regulations (ESR), if applicable.

Annual Tax Returns

Annual Corporate Tax returns: If a RAK ICC company falls within the Corporate Tax regime, it will be required to file an annual tax return.

Even if the company’s income is exempt (for example, if the income is sourced exclusively outside the UAE), the company may still be required to submit nil tax returns to confirm that no UAE-sourced income has been earned.

Companies that generate no taxable income in the UAE might not owe any corporate tax but could still be subject to filing obligations.

Economic Substance Regulations (ESR)

RAK ICC companies involved in relevant activities (such as holding companies, shipping, intellectual property, etc.) are subject to Economic Substance Regulations (ESR), requiring them to demonstrate substance in the UAE (e.g., adequate staff, premises, management).

Compliance with ESR includes annual filing of an ESR notification and, if applicable, an ESR report.

Failure to comply with ESR can lead to penalties, regardless of whether the company earns taxable income.

Transfer Pricing

Transfer pricing rules apply to transactions between related parties, ensuring that they are conducted at arm’s length. This could affect RAK ICC companies that have cross-border transactions with related entities.

Transfer pricing documentation: Companies may be required to maintain proper documentation to substantiate that the pricing of related party transactions is compliant with UAE transfer pricing rules.

RAK ICC Company
Key Compliance Changes
Summary

Corporate Tax Registration

RAK ICC companies may need to register for UAE Corporate Tax even if their income is foreign-sourced and exempt from tax.

Annual Tax Returns

Companies might need to file annual tax returns (including nil returns if exempt).

Accounting Requirements

Proper accounting records must be maintained, and annual financial statements should be prepared, even if no UAE tax is due.

Economic Substance Regulations (ESR)

If engaged in relevant activities, companies must comply with ESR, including filing notifications and reports.

Transfer Pricing

Companies must ensure that transactions with related parties comply with transfer pricing rules.

Audits

Audited financials might be required depending on the activity and jurisdiction of the RAK ICC company.

Conclusion

RAK ICC companies have historically been used as offshore vehicles with minimal reporting obligations. However, the introduction of UAE Corporate Tax, coupled with accounting, auditing, and filing obligations, means these companies now have more compliance requirements, even if they are not subject to tax on foreign-sourced income. This marks a significant shift in the usage of RAK ICC companies from a purely tax-neutral structure to one that now requires greater transparency and regulatory adherence.

Consulting our Business Tax Experts is advisable to ensure full compliance with the new tax regime and to optimize the use of RAK ICC companies on your business project, under the revised rules.