UAE Corporate Tax – With the adoption of corporate tax in the UAE, the tax and compliance requirements of the majority of UAE firms are expected to be drastically altered. Our dedicated tax team at Saif Chartered Accountants will be able to assist you with your corporate tax needs.
Due to the UAE’s new corporate tax system, businesses will need to work with a tax consultancy. In the UAE, Saif Chartered Accountants, a tax agent approved by the FTA, with over 29 years of combined experience. A member firm of SGA World International, the company has global exposure and will be able to assist companies once CT is implemented.
A Corporate Income Tax (CIT) has been introduced in the UAE on business profits. The change will take effect for financial years beginning on or after June 2023. Transfer pricing and documentation requirements will apply to UAE businesses in reference to the OECD Transfer Pricing Guidelines.
UAE Corporate Tax- Effective date for financial years starting on or after 1 June 2023.
Capital gains and dividends will not be subject to corporate tax in the UAE, which will continue to boost the holding company structure. Under the new tax regime, companies can register for group taxation or be taxed at a group level. It is therefore appropriate to include intercompany losses in the calculation of taxable profits.
The Ministry of Finance to introduce federal corporate tax on business profits that will be effective for financial years starting on or after June 1, 2023.
Tax rates: Business income
- 9% headline corporate tax rate for taxable income exceeding AED 375,000.
- 0% effective tax rate for taxable income up to AED 375,000 to support small businesses and startups.
Key features: UAE Corporate Income Tax
- Individuals will not be subject to corporate tax on income from employment, real estate, investment in shares or other personal income related to a UAE trade or businesses.
- No corporate tax/business taxes will apply on foreign investors who dont carry on business in the UAE.
- Corporate tax will apply on the adjusted accounting net profit of the business.
- Free Zone business that meet all the necessary requirements, can continue to benefit from corporate tax incentives.
- The extraction of natural resources will remain subject to Emirates level corporate taxation.
- No withholding tax will apply on domestic and cross border payments.
- No corporate tax will apply on capital gains and dividends received by a UAE business from its qualifying shareholdings.
- No corporate tax will apply on qualifying intragroup transactions and restructurings.
- Foreign tax will be allowed to be credited against UAE corporate tax payable.
- Cementing the UAE’s position as a world leading hub for business and investment
- Meeting international standards for tax transparency and preventing harmful tax practices
- Accelerating the UAE’s development and transformation to achieve its strategic objectives
Timeline and milestones
- On 31 January, 202 Ministry of Finance (MoF) announced UAE corporate tax
- On 28 April 2022, MoF launched public consultation document and invited comments by 20 May 2022
- On 9 December 2022, the Federal Tax Authority issued the Corporate tax decree law
Scope of Corporate Tax in UAE?
- All businesses and individuals conducting business activities under a commercial licence in the UAE
- free zone businesses (The UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business set up in the UAE’s mainland.)
- Foreign entities and individuals only if they conduct a trade or business in the UAE in an ongoing or regular manner
- Banking operations
- Businesses engaged in real estate management, construction, development, agency and brokerage activities.
Tax exemptions -UAE Corporate Tax
The following income shall be in general exempt from income Tax:
- Dividend income earned by UAE company from its qualifying shareholdings (to be defined in the law)
- Capital gains
- Profits from group reorganization
- Profits from Intra-group transactions
There will be no UAE withholding tax on domestic and cross-border payments.
Considering the exempt income scheme it can be anticipated that the Law shall include a participation exemption or similar principles commonly seen in international markets and businesses would need to evaluate if they will be able to meet the prescribed conditions (if any) to avail the exempt income scheme.
UAE CT FAQ
The impact of Corporate Tax on UAE businesses
Each registered business would have to register for CT, and each year, they would be required to pay nine percent of their adjusted taxable profits above the exemption threshold of Dh 375,000, so CT would be their short-term liability, which would adversely affect their working capital. The gap in working capital must be assessed by businesses, and the gap must be bridged. Businesses would consider the impact of CT on their business when preparing the budget for the respective period, and they would plan accordingly.
UAE Tax Calculator (CT)
Example of business tax/UAE Corporate Tax Rates calculation in UAE
|Less : All deduction**||25,000|
|Less : Exempt Amount||375,000|
|Corporate Tax @9% on||9000|
Corporate tax is a form of direct tax levied on the net income or profit of corporations and other entities from their business. Corporate tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions
According to the UAE Federal Decree-Law No. 47 of 2022 on taxation of corporations and businesses (the “Corporate Tax Law/tax laws”), businesses will become subject to UAE Corporate Tax from the beginning of their first financial year that starts on or after 1 June 2023.
The Ministry of Finance said in its statement announcing the tax: “The UAE 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 with mainland UAE.”
Taxpayers will be able to electronically register for UAE CT through the website of the Federal Tax Authority. Further guidance on this will be provided in due course. There is no registration threshold for UAE CT.
There is currently no personal income taxes in the United Arab Emirates. So individual income tax rates are not applicable. UAE an attractive jurisdiction from a tax perspective. Additionally, the UAE does not levy income tax on employment-based income.
Company laws and regulations govern the audit of financial statements by approved audit firms. Free Zone Persons who want to take advantage of the UAE CT regime must, however, have audited financial statements.
Each tax return and related supporting schedules will need to be submitted to the FTA within 9 months of the end of the relevant Tax Period.
To avoid double taxation, the UAE CT regime allows a credit for tax paid in a foreign jurisdiction against UAE CT liabilities on foreign-sourced income that is otherwise not exempt. “Foreign Tax Credit” refers to this.
It will be the LOWER of:
🗸 Taxes paid in the foreign jurisdiction; or
🗸 UAE CT on income derived from foreign sources.
No, any unutilised Foreign Tax Credit will not be able to be carried forward