Corporate Tax In UAE

UAE - Corporate Tax
The much-anticipated corporate Tax has been confirmed through a press release in the UAE by the Ministry of Finance (MoF). The ministry said the new regime implies a standard statutory tax rate of 9% and a 0% rate for taxable profits up to 375,000 dirhams ($102,107.50) to support small businesses and startups. The UAE Corporate Tax regime will be effective for financial years commencing on or after 1st June 2023 and will be a federal tax, applying uniformly across the seven Emirates. Except for the companies engaged in the extraction of natural resources(these companies are already subject to Tax by the respective Emirate), all entities would be required to abide by the corporate Tax law. The banking sector is also necessary to comply with the corporate tax law, and no exemptions have been given to any industry.  Furthermore, foreign entities and individuals must abide by the Corporate Tax law if the business is conducted in the UAE regularly. Therefore, the Ministry of Finance has proposed the following rates of taxation:

Taxable income up to AED 375,000 – 0%

Taxable income above AED 375,000 – 9%
Large multinational enterprises meeting the consolidated revenue thresholds(Eur 750 million / AED 3.15 billion) would be taxed differently.  The Tax payable will be computed on accounting profits as per the financial statements adjusted for certain items specified under the Corporate Tax law. For example, if a business has a taxable income of AED 450,000 (after all adjustments), the CT payable would be computed as follows:

AED 0 to AED 375,000 at 0% - AED 0

AED 375,000 to AED 450,000 at 9% - AED 6750 

Thus, the Corporate Tax liability would be AED 6,750. In addition, the UAE corporate Tax law will also provide for the reduction of any foreign taxes paid from the total tax payable. Entities will be allowed to utilize prior period losses (from the effective date onwards) to offset taxable income. In addition, excess losses can also be carried forward to the subsequent year if certain conditions are met.  The Corporate Tax regulations will allow companies to form a tax group and file a single tax return for the entire group, subject to certain conditions. The Corporate tax regime will be effective for the financial year starting on or after 1st June 2023. So, for example, a company that follows the calendar year and has an FY of 1st January 2023 to 31st December 2023 will be subject to CT in UAE from 1st January 2024.

Corporate Tax incentives currently provided by the various free zones will continue even under the new Corporate Tax regime provided that the entities comply with all regulatory requirements and that do not conduct business with mainland UAE. Currently, dividends and capital gains earned from ‘qualifying shareholdings’(the exact definition of ‘qualifying shareholdings’ will be specified in the Corporate Tax law) will be exempt from corporate tax in the UAE. Further, Corporate Tax will not be levied on a foreign investor’s income from dividends, capital gains, interest, royalties, and other investment returns.  Individuals will not be subject to Corporate Tax in the UAE on salary and other employment income, dividends, capital gains, and other income earned from owning shares or other securities in their capacity. Further, interest and other income earned by an individual from bank deposits or saving schemes will not be subject to Corporate Tax in the UAE.  The Federal Tax Authority (‘FTA’) will be responsible for the administration, collection, and enforcement of CT in the UAE. The Ministry of Finance will be the ‘Competent Authority’ for international tax matters and the international exchange of information for tax purposes. Corporate Tax returns will be filed on an annual basis electronically. The Corporate Tax regime does not require any provisional or advance filings.