UAE Introduces Corporate Tax Law From June 2023 – Its here
UAE Ministry of Finance Corporate Tax Law
On 31st January 2022, the UAE Ministry of Finance (MoF) declared the introduction of federal corporate tax (CT) in the UAE w.e.f. from 1st June 2023. The Corporate Tax is presented to incorporate best practices worldwide and curtail the compliance burden for UAE firms.
The first of its kind in the UAE, MoF said that the CT would be applied on the adjusted accounting net profits of a company above 375,000 AED (US$ 102000) and is going to be “among the most competitive in the world.”
The complete details on the proposed CT are published as Frequently Asked Questions (FAQs) on the website of the MoF and the Federal Tax Authority.
More information on the new Corporate Tax is expected to release in mid-2022.
In-depth detail about the new CT
The UAE is looking forward to introducing a federal corporate tax with effect on or after 1st June 2023. The UAE CT is going to apply across all Emirates to all business and commercial activities apart from extraction of natural resources that will still fall under Emirate level taxation.
The following rates will be applicable for the new UAE Corporate Tax.
| Taxable Income | UAE CT Rate |
| AED 0 – AED 375,000 | 0% |
| Above AED 375,000 | 9% |
Free zone businesses will be subject to UAE CT and will be required to register and file a CT return, although they will continue to enjoy CT holidays and 0% taxation if they follow all legal requirements and do not operate a business in the mainland UAE.
According to the press release and FAQs, a big multinational that fits the requirements of the OECD’s Base Erosion and Profit Shifting project’s ‘Pillar Two’ will pay a different tax rate (i.e. those who have consolidated global revenues more than EUR 750m).
CT will be levied on the accounting net profit mentioned in the business’s financial accounts with few exceptions and adjustments. Tax losses incurred since the CT’s implementation can be carried forward and used to offset taxable income in subsequent financial months.
UAE CT will not apply to:
- Employment income, income from property investment, income from savings, investment returns, and other income earned by individuals in a professional manner that is not related to UAE trade or business;
- Dividends, capital gains, and other investment gains obtained by foreign investors
UAE CT exemption will be available for:
- Interests and dividends from eligible stock holdings
- Applicable intra-group transactions and consolidations
Interest, dividends, royalties, and other payments made domestically and cross-border will not be subject to taxation in the UAE, and international tax credits will be available for taxation imposed by UAE businesses on funding earned outside the UAE.
UAE CT must be filed electronically for every financial year without the need for advance UAE CT payments based on provisional tax returns.
Companies in the UAE can establish a tax group, prepare a single tax return for the group, and transfer tax liabilities to other group members.
Transfer pricing (TP) rules and documentation requirements will be under the OECD TP Guidelines in the UAE CT system.
The Federal Tax Authority is responsible for the administration, collection, and enforcement of the corporate tax.
As per the press release and FAQs, we suppose the UAE CT system to be a residence-based CT rule to tax the global profits of UAE resident businesses and only the UAE-sourced business income of non-residents. This kind of approach is more consistent with other countries.
Next steps
The prominent features of the UAE CT system such as 0% CT for small businesses and startup companies, exemptions for UAE-based headquarters and global business hubs, zero taxation on foreign direct investment, zero taxation on personal income and low compliance for businesses will fortify the UAE’s position as a worldwide hub for business and investment not to mention a leading international financial center.
The UAE CT regime will continue to be one of the most competitive in the world, with a statutory tax rate of 9% and exemptions and reliefs (that we assume will be based on global best practices). With Egypt, Jordan, Kuwait, Lebanon, Oman, Saudi Arabia, and Qatar applying CT at rates ranging from 10% to 35%, the UAE would continue offering the most economical CT regime in the gulf (Bahrain presently does not have a general CT regime).
The emergence of a UAE CT regime would allow the UAE to accept and apply the OECD BEPS 2.0 policies to address the tax challenges posed by the global economy’s digitalization, as well as the implementation of a worldwide minimum tax rate for large multinational corporations.
While the press release and FAQs provide useful information on the proposed UAE CT regime’s expected core features, businesses will require further details and technical information to evaluate the influence and their compliance with the new UAE CT regime. We understand that more details will be accessible by the middle of 2022, giving UAE businesses at least 12 months to prepare.
How can we help?
The implementation of UAE CT will influence most UAE businesses’ tax and compliance expenses. To ensure compliance with the new UAE CT regime, businesses will need a clear understanding of the taxes and available optimization/mitigation techniques, as well as any required changes to their company structure, operating model(s), finance/tax function, reporting systems, legal contracts, and TP policies. Businesses must assess the impact of the adoption of UAE CT early on and plan ahead of time for a smooth transition.
If you have not thought about the impact of corporate tax on your business, we would gladly assess your position and guide you on the necessary actions you should take to prepare yourself to comply with CT once it becomes effective.
We at The Controller are ready to answer any queries or guide you through proper filing, returns and other accounting services. Contact us for any clarifications at +971 4396 2980 or +971 5611 84432.
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