Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses.
On 31 January 2022, the UAE Ministry of Finance announced the introduction of a federal corporate tax in the UAE that will be effective for financial years starting on or after 1 June 2023.
Generally, such taxes are computed on the accounting net profit/income of a business, after making adjustments for certain items which will be specified under the UAE Corporate Tax law.
UAE Ministry has announced that Corporate Tax shall be levied on taxable income/ profit at the following rate:
Income / profit as per Financials
For example, if the Company earns a taxable profit of AED 400,000 in a FY, The Corporate Tax liability will be calculated as follows:
The tax will be applicable in all businesses including the freezones except the activity for the extraction of natural resources. No corporate tax will apply on personal income from employment, real estate, and other investments, or on any other income earned which need not have a commercial license or permit to be undertaken in UAE.
Emirates Chartered Accountants Group [ECAG]- Corporate Tax in Dubai, UAE.
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UAE Corporate Tax will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which is subject to Emirate level corporate taxation.
Any Individual will be subject to UAE CT, if they conduct a trade or business in the UAE in an ongoing or regular manner. Therefore, though the salary or other employment benefit received by an Individual does not come under the ambit of Corporate Tax, income earned by an Individual who has a commercial license to carry out business in UAE shall be subject to UAE Corporate Tax.
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. Thus, if entire investment is done in personal capacity, an individual will not be liable to tax on gains on transfer and also periodical income from such securities.
Entities would have to ensure that transaction between related parties are carried out on arm’s length terms.
UAE businesses will need to comply with transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing Guidelines
However, certain qualifying transactions between the entities within the group shall be exempt provided they meet the prescribed criteria.
Free zone businesses will be subject to UAE Corporate Tax, and therefore all the compliance under the Regulations will have to adhered to.
However, it is indicated that new Regulations will continue to honour the tax incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE.
We await detailed provisions on taxability of the free zone businesses