UAE TAX

Overview UAE Corporate Tax

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. A competitive Corporate Tax regime based on international best practices will cement the UAE’s position as a leading global hub for business and investment, and accelerate the UAE’s development and transformation to achieve its strategic objectives. Introducing a Corporate Tax regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices. The UAE Corporate Tax regime will become effective for financial years starting on or after 1 June 2023.

Entities with activities in the UAE (both offshore and onshore) will need to evaluate the impact of UAE Corporate Tax on their transactions including cross-border transactions and entity structure and ensure compliance with the new UAE Corporate Tax requirements.

Effective Corporate Tax study and planning will prove crucial for all businesses in the UAE. Our staff at HALSCA are well-equipped and ready to provide services as tax consultants in UAE. Get in touch with HALSCA for a smooth transition to the upcoming UAE Corporate Tax regime.

(https://www.mof.gov.ae/en/resourcesAndBudget/Pages/faq.aspx)

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.

A competitive CT regime based on international best practices will cement the UAE’s position as a leading global hub for business and investment, and accelerate the UAE’s development and transformation to achieve its strategic objectives.

Introducing a CT regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices.

Most countries in the world have a comprehensive CT regime, including most of the GCC Member States

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

Examples:

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)

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)

The UAE CT is a Federal tax and will therefore apply across all Emirates

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

Scope and rate

UAE CT will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation

All activities undertaken by a legal entity will be deemed “business activities” and hence be within the scope of UAE CT

This would generally be done by reference to the individual having (or being required to obtain) a business licence or permit to carry out the relevant commercial, industrial and/or professional activity in the UAE

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

The CT rates are:

0% for taxable income up to AED 375,000;

9% for taxable income above AED 375,000; and

a different tax rate for large multinationals that meet specific criteria set with reference to ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project

A multinational corporation is a corporation that operates in its home country, as well as in other countries through a foreign subsidiary, branch or other form of presence / registration. Merely earning income from outside its home country without a foreign presence or registration would not make a business a multinational corporation

In the context of the global minimum effective tax rate as proposed under ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project,” large” refers to a multinational corporation that has consolidated global revenues in excess of EUR 750m (c. AED 3.15 bn)

UAE CT will not apply on an individual’s salary and other employment income (whether received from the public or private sector)

Business income earned under a commercial license will be within the scope of UAE CT

The investment in real estate by individuals in their personal capacity should not be subject to UAE CT provided the individual is not required to obtain a commercial license or permit to carry out such activity in the UAE

Individuals will not be subject to UAE CT on dividends, capital gains and other income earned from owning shares or other securities in their personal capacity

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

Interest and other income earned by an individual from bank deposits or saving schemes will not be subject to UAE CT

The CT liability will be calculated as follows:

Taxable income of AED 0 – AED 375,000 at 0% = AED 0

Portion of taxable income exceeding AED 375,000 (i.e. AED 400,000 – AED 375,000 = AED 25,000) at 9% = AED 2,250

The UAE CT liability for the year will be AED 0 + AED 2,250 = AED 2,250

The final amount of UAE CT payable will be reduced by any foreign taxes incurred on the relevant income (see below under ‘Tax Credits’ section)

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

Income exempt from CT

Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from UAE CT

A qualifying shareholding refers to an ownership interest in a UAE or foreign company that meets certain conditions to be specified in the UAE CT law

Qualifying intra-group transactions and reorganizations will not be subject to UAE CT provided the necessary conditions are met

Foreign persons

Foreign entities and individuals will be subject to UAE CT only if they conduct a trade or business in the UAE in an ongoing or regular manner

UAE CT will generally not be levied on a foreign investor’s income from dividends, capital gains, interest, royalties and other investment returns

Free zones

Free zone businesses will be subject to UAE CT, but 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 with mainland UAE

A business established in a free zone will be required to register and file a CT return

Further details on the compliance obligations of free zone businesses will be provided in due course

The UAE CT treatment that will apply to businesses in free zones will be the same across all free zones

Industry sectors

Businesses engaged in the extraction of natural resources will remain subject to Emirate level corporate taxation and be outside the scope of the UAE CT

Banking operations will be subject to UAE CT

Further details on the current Emirate level corporate taxation will be provided in due course

Businesses engaged in real estate management, construction, development, agency and brokerage activities will be subject to UAE CT

Losses

The UAE CT regime will allow a business to use losses incurred (as from the UAE CT effective date) to offset taxable income in subsequent financial periods

A loss for CT purposes (tax loss) would arise when the total deductions the businesses can claim are greater than the total income for the relevant financial period

Excess tax losses may be carried forward and used against taxable income in future years, provided certain conditions are met

Further information on the UAE CT loss carry-forward rules will be provided in due course

Tax losses from one group company may be used to offset taxable income of another group company, provided certain conditions are met Further information on the group loss utilisation rules will be provided in due course

Tax group

A UAE group of companies can elect to form a tax group and be treated as a single taxable person, provided certain conditions are met

A UAE tax group will only be required to file a single tax return for the entire group

Withholding tax

Withholding tax is tax collected at source by the payer on behalf of the recipient of the income

Withholding taxes exist in many tax systems and are typically used in respect of dividends, interest, royalties and similar payments

UAE withholding tax will not be applicable on domestic and cross-border payments of any nature under the UAE CT regime

Tax credits

Foreign CT paid on UAE taxable income will be allowed as a tax credit against the UAE CT liability

Transfer pricing

Transfer pricing rules seek to ensure that transactions between related parties are carried out on arm’s length terms (i.e. as if the transaction was carried out between independent parties)

UAE businesses will need to comply with transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing Guidelines

Administration

Yes. More information on the registration process and ongoing compliance obligations for businesses will be provided in due course

Only one CT return will need to be filed per financial period. No provisional or advance CT filings will be required

A financial period is generally a year

The CT return will need to be filed electronically. Further guidance will be issued in this regard in due course

UAE businesses will not be required to make advance UAE CT payments

Similar to other taxes in the UAE (e.g. VAT), businesses will be subject to penalties for non-compliance with the CT regime. Further information on the UAE CT compliance obligations and applicable penalties will be released in due course

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 finalised 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.