Table of Contents
Details at a Glance
Introduction:
The implementation of corporate tax in the United Arab Emirates (UAE) marks a significant milestone in the country’s tax landscape. As per the UAE Federal Decree-Law No. 47 of 2022, businesses are now subject to UAE Corporate Tax starting from their first financial year commencing on or after June 1, 2023. This guide provides key insights into the scope, objectives, exemptions, and rates of UAE corporate tax, empowering businesses with the necessary knowledge to navigate this new tax regime.
Understanding Corporate Tax (CT):
Corporate tax is a direct tax levied on the net income or profit generated by corporations and other entities from their business activities. The introduction of corporate tax in the UAE aligns with the country’s strategic objectives, aiming to solidify its position as a global business and investment hub, expedite its development, and adhere to international tax transparency standards.
Scope of UAE Corporate Tax:
UAE Corporate Tax applies to all businesses and individuals conducting commercial activities under a valid commercial license within the UAE. Free zone businesses, while subject to certain CT incentives based on compliance and non-engagement in mainland activities, are also within the scope of the UAE corporate tax regime. Foreign entities and individuals fall under the purview of corporate tax only if they conduct ongoing or regular trade or business activities in the UAE. Furthermore, specific sectors such as banking operations and businesses engaged in real estate management, construction, development, agency, and brokerage activities are also subject to corporate tax.
Exemptions from Corporate Tax:
Certain exemptions exist within the UAE corporate tax framework. Businesses engaged in the extraction of natural resources remain subject to the current Emirate-level corporate taxation and are exempt from CT. Dividends and capital gains earned by a UAE business from qualifying shareholdings are also exempt from corporate tax. Qualifying intra-group transactions and reorganizations meeting necessary conditions are not subject to CT. Additionally, corporate tax does not apply to individual earnings from salary and employment income, interest income from bank deposits or saving schemes, foreign investors’ income from dividends, capital gains, interest, royalties, and other investment returns, personal real estate investments, and personal ownership of shares or securities.
Corporate Tax Rate:
According to the Ministry of Finance, the corporate tax rates in the UAE are structured as follows: taxable income up to AED 375,000 is subject to a 0% tax rate, taxable income above AED 375,000 is subject to a 9% tax rate, and large multinationals meeting specific criteria under ‘Pillar two’ of the OECD Base Erosion and Profit Shifting Project will be subject to a different tax rate (yet to be specified). The Federal Tax Authority (FTA) is responsible for administering, collecting, and enforcing corporate tax in the UAE, and businesses can expect further guidance on registration and filing procedures on the FTA’s website.
Conclusion:
The implementation of corporate tax in the UAE signifies the country’s commitment to international tax standards and its efforts to enhance economic development and sustainability. Businesses operating in the UAE must stay informed about the scope, exemptions, and rates of corporate tax to ensure compliance and proper tax planning. Consulting qualified tax advisors or accounting professionals is recommended to navigate the new tax regime effectively. By understanding the implications of corporate tax, businesses can adapt their strategies and contribute to the growth and prosperity of the UAE.