Corporate Tax in UAE

 

Corporate Tax (CT) in the United Arab Emirates.

The United Arab Emirates (UAE) Ministry of Finance has published Federal Decree-Law No. 47 of 2022 providing the legislative framework for corporate tax on business profits in the UAE on 09 December 2022. 

 What is Corporate Tax (CT) in UAE?

Corporate tax is a form of direct tax levied on the net income or profit of corporations and other entities from their business. The UAE introduced this tax with the aim of strengthening the country’s position as a leading global center for business and investment, in addition to accelerating the country’s development and transformation to achieve its strategic goals and renewing its commitment to meeting international standards of transparency tax and prevent harmful tax practices.

 

When will this be applicable? 

Corporate tax will apply in the country for financial years starting on or after June 1, 2023, for example:

Businesses whose financial year begins on July 1, 2023, and ends on June 30, 2024, will be subject to corporate tax in the UAE from July 1, 2023 (which is the start of the first financial year starting on or after June 1, 2023).

Businesses that have a financial year (calendar) starting from January 1, 2023, and ending on December 31, 2023, will be subject to corporate tax in the country as of January 1, 2024 (which is the beginning of the first financialy starting on or after June 1, 2023). 

 

To whom it will be applied?

The new corporate tax will apply to all Emirati businesses, with the exception of the extraction of natural resources, which will remain subject to emirate-level corporate taxation. Foreign entities and individuals will be subject to corporate tax only if they carry on or carry on regular business or trade in the UAE. The Federal Tax Authority declared that all activities carried out by a legal entity would be considered "business activities" and accordingly all businesses engaged in such business activities would be subject to corporate tax.

Exemption scope:

Certain persons will be exempt from CT, either automatically or by way of application. For example, regulated investment funds and Real Estate Investment Trusts can apply to the FTA to be exempt from CT subject to meeting certain requirements. Also, qualifying intra-group transactions and reorganizations will not be subject to CT, provided the necessary conditions are met.

Additionally, CT will not apply to: 

•   An individual earnings salary and other employment income, whether received from the public or the private sector.

•     Interest and other income earned by an individual from bank deposits or saving schemes.

•     A foreign investor’s income earned from dividends, capital gains, interest, royalties, and other investment returns.

•         Investment in real estate by individuals in their personal capacity.

•    Dividends, capital gains, and other income earned by individuals from owning shares or other securities in their personal capacity.

  

What is the Corporate Tax Rate? 

As per the Ministry of Finance, the Corporate Tax Rate is: 

•         0 percent for taxable income up to AED 375,000

•         9 percent for taxable income above AED 375,000 and

•     A different tax rate (not yet specified) for large multinationals that meet specific criteria set with reference to 'Pillar two' of the OECD Base Erosion and Profit Shifting Project.

 

What is the role of the Federal Tax Authority?

Federal Tax Authority (FTA) will be responsible for the administration, collection, and enforcement of the CT.

 

Registering, filing, and paying Corporate Tax:

All Taxable Persons (including Free Zone Persons) will be required to register for Corporate Tax and obtain a Corporate Tax Registration Number. The Federal Tax Authority may also request certain Exempt Persons to register for Corporate Tax.

Taxable Persons are required to file a Corporate Tax return for each Tax Period within 9 months from the end of the relevant period. The same deadline would generally apply for the payment of any Corporate Tax due in respect of the Tax Period for which a return is filed.

The Above topic Text was Sourced from the Website of the Federal Tax Authority (https://tax.gov.ae/en/taxes/corporate.tax/corporate.tax.topics/administration.aspx)

 

Conclusion:

This move is motivated by UAE's desire to meet international tax standards, following similar moves in neighboring Gulf states, while minimizing the compliance burden for UAE businesses and shielding small businesses and start-ups. The UAE, home to the key business hub Dubai, will still have one of the lowest corporate tax rates in the world but the move will diversify state income away from hydrocarbons.

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