Corporate Tax UAE
UAE set to impose 9% corporate tax starting June 1, 2023. Corporate tax UAE will be applied on the adjusted accounting net profits of a business above 375,000 AED. 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.
UAE Corporate Tax Rate
The Ministry of Finance said the new tax, the first of its kind in the country, will be applied on the adjusted accounting net profits of a business above 375,000 AED (US$102,000), and would “be amongst the most competitive in the world.” Following are the Corporate Tax Rates in UAE:
- 0% for taxable income up to AED 375,000;
- 9% for taxable income above AED 375,000;
- 15% rate for large international multi-nationals (with global revenues of more than AED3.15 billion)
Corporation Tax Exemptions
The new corporate tax will not be applicable on income from personal employment or investments that do not arise from a commercial activity. Firms involved in the extraction of natural resources will also be exempt from the new levy and UAE firms will be exempt from paying tax on capital gains and dividends received from their qualifying shareholdings. Businesses will also be able to credit foreign taxes paid against the amount of UAE corporate tax they are charged.
The UAE will also not impose withholding taxes on domestic and cross border payments, or subject foreign investors to corporation tax if they do not conduct business in the UAE.
Corporate tax for Free Zone Companies in UAE
The Ministry of Finance said the CT regime would 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. Free zone businesses will be required to register and file a Corporate Tax return.
What are the Key points of Corporation Tax in UAE?
- Corporate Tax will apply for financial years starting on or after 1 June 2023
- Federal tax authority (FTA) will be responsible for the administration, collection and enforcement of CT
- Applicable to all UAE businesses and commercial activities (including sole establishments and freelancers)
- Exclusion for companies involved in the extraction of natural resources, which will remain subject to Emirate level corporate taxation
- Taxable income will be the accounting net profit of a business (determined in accordance with IAS), after making adjustments for certain items to be specified under the UAE corporate tax law in due course
- Tax grouping will be possible
- Certain income will be exempt from CT, such as dividends and capital gains earned by a UAE business from its “qualifying shareholdings” and “qualifying” intra-group transactions
- Offset of losses from taxable income in subsequent financial periods will be permitted
- Foreign CT paid on UAE taxable income will be allowed as a tax credit against the UAE corporate tax liability
Implications
Businesses should assess the potential impact of CT on their operations and prepare for Corporate Tax compliance requirements in the UAE. Specifically, businesses should:
- Assess whether the existing tax function, operating model and governance (people, processes, systems and technology) are sufficient to address the requirements of the Corporate Tax regime.
- Assess the impact of CT on existing legal structures and operating models. This could include a quantitative analysis showing the anticipated financial impact of CT.
- Identify potential exposures and opportunities to drive tax efficiencies from both a tax cost and administrative perspective prior to the CT implementation, e.g., legal entity rationalization, international and domestic restructuring, and transfer pricing.
Also, businesses should assess whether accounting policies and data management systems are appropriate to achieve a position of full compliance with both Corporate Tax in UAE and existing Value Added Tax reporting obligations.