Various UAE Tax Provisions for Restaurants
The good news is that the UAE’s tax system offers an array of provisions designed to support businesses even though restaurants (including those in free zones) do not get any specific exemptions as all sales are to natural persons. Here are some of the key provisions compiled by the dedicated team at ASK Management Consultants LLC-FZ:
- Income Tax: Restaurants are subject to a 9% corporate income tax on their net profits of over AED 375,000. And those with sales below AED 3 million can apply for SME relief. And when asked during your income tax return or ITR filing whether to make an election for realized basis of accounting or not, make sure to respond with a resounding affirmative!
- Group Taxation: Hospitality industry patrons with a group of restaurants and a separate common kitchen, are better off registering as a tax group. Though it compromises the basic AED 375,000 relief which is then applicable to the whole group as opposed to a standalone unit, the losses in one unit may be used against the profits of another to curtail overall group tax burden.
- Reporting Framework for Financial Books: There is the International Framework for Reporting Standards (IFRS) and then there is the IFRS for SME! And what does or does not apply to a restaurant depends on the sales value. For sales below AED 5 million IFRS SME can be used, while sales above AED 5 million require full IFRS to be used and annual audit becomes a requirement as well.
- Profit and Loss Account: To begin with, sufficient records are to be maintained for all expenses that are wholly and exclusively for business purposes. This applies to personal meals and free meals. Then there are special rules for business loan interest, that is to say that the allowed interest expenditure is greater than AED 12 million or 30% of EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization). And though entertainment expenses may seem like a necessity for motivation, these expenses are allowed at 50% of actual expenses incurred.
- Future Utilization of Losses: Tax losses can be carried forwarded till extinguished but during a single tax year they can maximum offset 70% income for that year. Separate rules for transfer of tax losses and losses in case of change in ownership have been drafted.
The UAE’s tax system might seem like a complex maze, but with the right knowledge and support, you can transform tax complexity into a recipe for success. With our knowledge base built upon helping other Restauranteurs succeed around the globe, our team is eager to share their expertise with you and help you review and develop tailored strategies for business, internal audit, accounting and tax. From revenue ideas like premiumization, disaggregating lines of business and social dining to cost controlling by cost aggregator and recipe-based accounting we can be your partners in growth!
Remember, ASK Management Consultants LLC-FZ is your one-stop shop for all your UAE restaurant tax and business needs.