Future legislative changes to corporate tax in UAE mean companies must prepare for adjustments ahead
In the world of business and taxation, understanding the intricacies of tax laws and their enactment is crucial. A recent development in the United Arab Emirates serves as a prime example, with Ministerial Decision No. 173 of 2025 closing the ability to acquire non-depreciated investment property assets and take immediate tax advantage of accumulated depreciation.
However, the time period required between the commencement of a government regime and a law that is a patch is not fixed and universal. In the UAE, for instance, the backdating can be shorter than expected, as demonstrated by Ministerial Decision No. 173 of 2025, which was backdated seven months.
This lack of a clear, fixed timeframe can pose challenges for businesses, particularly those in the Small and Medium Enterprise (SME) sector. Entrepreneurs may unintentionally find themselves in a tax planning predicament, as demonstrated by Timmy's situation, for whom there is no clear solution.
While some businesses may engage in tax limbo by staying technically within the law, such practices can raise questions. For example, setting up multiple entities to avoid specific hiring policies might keep an individual below the reporting threshold, but it is a strategy that is not explicitly illegal but may not be found in the legislation or clarifications.
Moreover, the salary of a business owner-managing director who is paid an unusually high salary may be profitable, but such a salary is likely to exceed what an individual would be paid if they were not also the owner. In such cases, a connected party declaration with detailed supporting proof is required when submitting a corporate tax return if the remuneration exceeds Dh500,000 per annum.
Manually disallowing an amount within one of the overhead expenses lines when completing the return may also raise questions from the tax inspectorate. Blatant tax avoidance can lead to an organization's structure being changed by regulatory authorities.
On the other hand, when a law provides sufficient lead time and clarity, it helps reduce disputes and litigation risks by ensuring that taxpayers understand and can comply with the new requirements. Providing a clear timeline allows businesses to adjust their operations, accounting practices, and compliance strategies to align with the new law.
For instance, the recently enacted Income Tax Act, 2025 in India, scheduled to start on April 1, 2026, allows companies to prepare for changes related to deductions, transfer pricing, and compliance easing. New tax provisions, such as changes in threshold limits or filing deadlines, require updates to reporting systems. In India, changes like extended deadlines for updated tax returns (from 12 to 48 months) and amendments to tax deduction rules necessitate that businesses revise their tax reporting processes well in advance.
In summary, while no absolute legal minimum time between regime commencement and tax law enactment applies universally, common practice is to provide several months to a year of lead time. This enables businesses to align tax planning and reporting with new laws, thereby promoting compliance, reducing disputes, and supporting strategic financial management.
In the UAE, the enactment of Ministerial Decision No. 173 of 2025, a prime example of a tax law modification, was backdated seven months, demonstrating a shorter-than-expected timeframe for the implementation of regulatory changes. This lack of a clear, fixed timeframe can present challenges for businesses, particularly those in the SME sector, as demonstrated by Timmy's tax planning predicament. Some businesses might employ suspicious practices to stay within the law, such as setting up multiple entities to circumvent specific hiring policies or declaring exceptionally high salaries for owner-managers. These strategies, though not explicitly illegal, may not be explicitly outlined in the legislation or clarifications, potentially leading to questions from the tax inspectorate. On the contrary, providing sufficient lead time and clarity, as seen in the upcoming Income Tax Act, 2026 in India, reduces disputes and litigation risks, as businesses can then adjust their operations, accounting practices, and compliance strategies to align with the new requirements. This approach promotes compliance, reduces potential issues, and supports strategic financial management.
