Corporate Tax in the UAE- Effective from 1st June 2023

Corporate Tax in the UAE – From 1st June 2023

The Finance Ministry in the UAE announced introduction of Corporate Income Tax on 31 January 2022. 

The UAE is a member of OECD Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”), and hence committed for meeting the International Standards for tax transparency and preventing harmful tax practices.

The highlights as available on the Ministry’s website, is summarised herewith:

Corporate Tax Applicability – From When? 

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

It is clarified that when business has calendar as their financial year, then the Corporate Tax shall be effective from 1 January 2024. 

Further, as Corporate Income Tax is a federal tax it will be implemented across Emirates uniformly.

Corporate Tax Applicability – To Whom?

The UAE Corporate Tax regime will shall be applicable to all UAE businesses / Commercial activities except for extraction of natural resources.    

Individuals would be subject to Corporate Tax only if they have ongoing and regular business in UAE. 

Individuals having income from salary / employment income shall not be subject to Corporate Tax. Also, dividends, capital gains and other income from owning shares/securities earned by Individuals in their personal capacity would not be subject to Corporate Tax.

Passive income of foreign investor’s i.e. dividends, capital gains, interest, royalties and other investment returns may not come under the purview of Corporate Tax. 

Corporate Tax Rate in UAE

Taxable Income     Rate of Tax
Taxable income up to AED 375,000     0%
Taxable income above AED 375,000     9% (on portion of taxable income exceeding AED 375,000)
For large Multinationals (having consolidated business revenues in excess of EUR 750 Million/ AED 3.1 Billion)     A different Tax Rate. (As per the Guideline from OECD- Pillar 2 it will be minimum 15%) 

 

What is Taxable Income as per Corporate Tax?

The taxable income = Net profit / income of a business prepared in accordance with internationally acceptable accounting standards, subject to certain adjustments as provided by Regulation. 

Specific exemption would be for Dividends and capital gains earned by a UAE business from its ownership interest subject to specified conditions.

Carry forward of losses shall be permitted subject to fulfilment of certain conditions.

Credit for the taxes paid in foreign jurisdiction on UAE taxable income shall be allowed.

Tax Group

Group of companies can elect to form a tax group and be treated as a single taxable person, subject to fulfilment of certain conditions.

Intra group transactions and reorganisations would not be subject to Corporate Tax in UAE, provided necessary conditions are met.

 Free Zones and Corporate tax applicability

Free Zone entities would be subject to Corporate Tax; however Corporate Tax incentives shall be provided to honour the commitment. However, such entities will have to fulfil Compliance (registration and filing of Return) obligations.

Related party Transaction - Transfer Pricing 

To enable calculations of Corporate Tax as per the Regulation, UAE businesses will need to comply with transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing Guidelines.

Corporate Tax – Compliance

Registration   Required
Filing of Return of Income   Annually
Advance Tax Calculations / payment     Not Applicable 
Method of Filing Electronic

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­Corporate Tax -Withholding Tax

At present, withholding tax will not be applicable on domestic and cross-border payments of any nature. 

How Can Emirates Chartered Accountants Group help?

We at Emirates Chartered Accountants Group shall ensure we keep you updated on the newly introduced Regulation and its impact on your business.

Our professionals shall help you to :-

  1. ­    Interpret and analyse the implication of newly introduced Tax measures on your business
  2. ­    Re-align your business in a tax efficient manner
  3. ­    Analysing and determine arm’s length price for intra group transactions, wherever applicable
  4. ­    Adhere to compliance requirements of the Regulations
  5. ­    Decipher the Regulations and provide guidance to your queries

 For Corporate Tax  Queries

tax@emiratesca.com
Mobile: +971 50 282 8727
WhatsApp: +971 50 528 2838

 

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