UAE TO INTRODUCE FEDERAL CORPORATE TAX FROM JUNE 2023

Corporate Tax Rates:

  • 9% Corporate Tax rate for taxable income exceeding AED 375000
  • 0% Tax Rate for taxable income up to AED 375000 to support small and medium size enterprise

Applicability to free zones and financial free zones

  • Free Zone (including financial free zones) businesses in UAE will be subject to Corporate Tax. However, it has been clarified that the Corporate Tax regime will continue to honour the corporate tax incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business in mainland UAE.
  • Businesses established in a free zone will be required to register and file a Corporate Tax Return.

Applicability to foreign persons

  • Foreign entities and foreign individuals will be subject to Corporate Tax only if they conduct a trade or business in the UAE in an ongoing or regular manner.
  • Moreover, Corporate Tax will generally not be levied on a foreign investor's income derived from dividends, capital gains, interest, royalties and other investment returns.

Exempt income

The following categories of income will not be subject to CIT:

  • Capital gains.
  • Dividends received by UAE businesses from qualifying shareholding. A qualifying shareholding refers to an ownership interest in a UAE or foreign company that meets certain conditions to be specified in the UAE CIT law.
  • Qualifying intragroup transactions and restructurings
  • Income from the extraction of natural resources (relevant for the oil and gas industry). This income will remain subject to Emirate level corporate taxation
  • Businesses engaged in real estate management, construction, development, agency and brokerage activities will be subject to UAE CIT.

Applicability of Transfer Pricing Rules:

Transfer Pricing rules and documentation requirements will now be aligned with the OECD Transfer Pricing Guidelines i.e., Master File and Local File. Documentation will require groups of companies to perform benchmarking searches to justify their pricing policies of inter-company transactions. We await for further details/clarifications on potential exemptions for qualified intra-group transactions and other compliance requirements that may be introduced.

Relevant Authority?

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

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

Compliance and Obligations under Corporate Tax:

  • Business which are subject to UAE CIT will be required to file a CIT return electronically for each financial period. A financial period is generally a year.
  • Businesses established in a free zone will be required to register and file a CIT return
  • Businesses will be subject to penalties for non-compliance with the CIT regime.

Other Key Features:

  • Withholding taxes on domestic and cross border payments will not be imposed.
  • Businesses involved in the "extraction of natural resources" - essentially oil and gas production - will be exempt as they are subject to emirate-level taxation already, the ministry said.
  • Foreign taxes paid will be credited against any payable UAE Corporate Tax meaning there will be no double taxation.
  • There will be "generous loss utilisation rules" and "UAE groups can be taxed as a single entity or can apply group relief in respect of losses and intragroup transactions and restructurings".
  • The taxable income will be the accounting net profit of a business, after making adjustments for certain items to be specified under the UAE CT law. The accounting net profit of a business is the amount reported in the financial statements prepared in accordance with internationally acceptable accounting standards.
  • Effective from the financial year starting on or after June 1, 2023

Businesses will have ample time to prepare for the introduction of Corporate Tax, and further information on the UAE Corporate Tax regime will be provided towards the middle of 2022 to help businesses get ready and be fully compliant.

(The legislation is yet to be issued and the details for the corporate tax regime are subject to finalization).

Important notice:

The information in this page 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.

How We Can Help:

Although the press release and FAQ provided relevant information regarding some of the most relevant changes brought forward by the introduction of a UAE Corporate Tax, its technical aspects and specifics will only be known once official legislation is passed. At Excellence, our team of experts can help you in assessing the challenges and opportunities that the introduction of a Corporate Tax will bring.

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Frequently Asked Questions

Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses.
Corporate Tax is sometimes also referred to as "Corporate Income Tax" or "Business Profits Tax" in other jurisdictions.

The UAE CT regime will become effective for financial years starting on or after 1 June 2023Examples:

dot A business that has a financial year starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE CT from 1 July 2023 (which is the beginning of the first financial year that starts on or after 1 June 2023)

dot A business that has a (calendar year) financial year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE CT from 1 January 2024 (which is the beginning of the first financial year that starts on or after 1 June 2023)

UAE CT will generally apply to income earned from activities carried out under a freelance license / permit, albeit no CT will be payable unless the annual net income of the freelance professional exceeds AED 375,000.

Businesses engaged in the extraction of natural resources will remain subject to Emirate level corporate taxation and be outside the scope of UAE CT Information on other UAE CT exemptions and exclusions will be provided in due course.

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