UAE Corporate Tax: With effect from 01^st June 2023

The Ministry of Finance has announced that the UAE will introduce a federal corporate tax on business profits that will be effective for the financial year starting on or after June 1, 2023.

Corporate tax will be payable on the profits of UAE businesses as reported in their financial statements prepared in accordance with internationally accepted accounting standards, with minimal exceptions and adjustments.

The corporate tax will apply to all businesses and commercial activities alike, except for the extraction of natural resources which will remain subject to Emirate level corporate taxation.

The Corporate Tax Rates are:

• 0% for taxable income up to AED 375,000
• 9% for taxable income above AED 375,000
• A different tax rate for large multinationals that meet specific criteria set with reference to ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting Project.

What is meant by ‘’large’’ multinationals?

Pillar Two requires MNE groups with an annual global turnover exceeding €750 million (AED 3.15 Bn)

Will individuals fall under the purview of tax?

No corporate tax will apply on personal income from employment, real estate, and other investments, or on any other income earned by individuals that do not arise from a business or other form of commercial activity licensed or otherwise permitted to be undertaken in the UAE.

Will income earned by an individual from bank deposits be subject to UAE Corporate Tax?

Interest and other income earned by an individual from bank deposits or saving schemes will not be subject to UAE Corporate Tax.

Corporate tax incentives

Recognizing the contribution of free zones to the UAE’s economy and competitiveness, the UAE corporate tax regime will continue to honor the corporate tax incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE.

Given the position of the UAE as a global financial center and an international business hub, the UAE will not impose withholding taxes on domestic and cross-border payments, or subject foreign investors who do not carry on business in the UAE to corporate tax.

UAE business will be exempt from paying tax on capital gains & dividends

As an international headquarter location, a UAE business will be exempt from paying tax on capital gains and dividends received from its qualifying shareholdings, and foreign taxes will be allowed to be credited against UAE corporate tax payable.

The UAE corporate tax regime will have generous loss utilization rules and will allow UAE groups to be taxed as a single entity or to apply for group relief in respect of losses and intragroup transactions and restructurings.

One corporate tax return each financial year

The UAE corporate tax regime will ensure the compliance burden is kept to a minimum for businesses that prepare and maintain adequate financial statements.

Businesses will only need to file one corporate tax return each financial year and will not be required to make advance tax payments or prepare provisional tax returns.

Transfer pricing and documentation requirements will apply to UAE businesses with reference to the OECD Transfer Pricing Guidelines.

UAE businesses will be given ample time to prepare for the introduction of corporate tax in the UAE. The UAE Ministry of Finance plans to issue further information on the UAE corporate tax regime toward the middle of the year to help businesses get ready and be fully compliant.

If a business has earned taxable income of AED 400,000 in a given financial year, what will be the UAE Corporate Tax payable?

Taxable Income of AED 0-AED 375,000 @ 0%= AED 0

Taxable Income exceeding AED 375,000 (i.e AED 400,000-AED 375,000=AED 25,000) @9%=AED 2,250

Finally, the UAE Corporate Tax liability for the year will be AED 0+ AED 2,250= AED 2,250/-

The final amount of UAE Corporate Tax payable will be reduced by any foreign taxes incurred on the relevant income.

What will be the role of the Federal Tax Authority?

The Federal Tax Authority will be responsible for the administration, collection, and enforcement of UAE CT.

What will be the role of the Ministry of Finance?

The Ministry of Finance will remain the ‘competent authority’ for purposes of bilateral/multilateral agreements and the international exchange of information for tax purposes.

Important notice

The information shared is meant to provide an initial introduction to the proposed UAE Corporate Tax (CT) regime in advance of relevant legislation being finalized and promulgated. It is not intended to comprehensively address all possible aspects of the UAE CT regime or to provide definitive answers and should not be used for individual or business decisions as it does not represent the final legislation. This document is subject to change without notice.

Further information on the technical details and other specifics of the UAE CT regime will be made available in due course.

Source: Ministry of Finance, UAE