Section 1 – APPLICABILITY
Corporate Income Tax is a type of income-based direct tax. The UAE Ministry of Finance said in January 2022 that corporate taxes would be implemented throughout the United Arab Emirates as of June 1, 2023, depending on the financial year of the businesses. There are other nations like the US, India, France, and also other GCC countries such as Oman, Kuwait, and Qatar that levy corporate taxes on a worldwide scale besides the United Arab Emirates. In addition to aiming to improve corporate governance and so support the nation’s economy, the implementation of corporate tax has always assisted in sustaining their economy. The corporate tax is viewed as the strategic economic transformation’s propeller as well. By implementing Corporate tax, the UAE hopes to strengthen its position as the world’s top business and investment hub, speed up national development, and reaffirm its commitment to adhering to international standards for tax transparency and preventing unethical tax practices.
While the Ministry of Finance will continue to be the competent authority for the purpose of any bilateral or multilateral agreements as well as the international exchange of information for tax purposes, the Federal Tax authority will be in charge of administering, collecting, and enforcing UAE Corporate Tax.
Businesses or incomes that are not subject to Corporate tax
Any enterprises that make more than the 3,75,000 AED profit threshold are required to pay corporation tax but some kinds are not subject to corporate tax. The exempted ones are :
- Corporate taxes will not be applied to individuals and to any income received from employment, real estate, stock investments, or other sources of personal income not connected to a trade or business in the UAE.
- Exemptions apply to foreign investors who don’t do business in the UAE. If a business operating in a free zone complies with all regulatory requirements, the current corporate tax benefits would be maintained.
- Businesses in the UAE are not taxed on capital gains or dividends they earn from eligible shareholdings. The qualified intragroup transactions and restructurings are not covered by this exception.
Liable for corporate tax
Every business that generates a taxable profit (net) of more than 375,000 AED is liable to corporation tax, which must be paid as a percentage of net profit. This group includes some entities in a free zone as well as UAE businesses that were incorporated in the UAE or that are managed and controlled there. If the net profit is less than 3,75,000 AED, the corporate tax rate will be 0% to aid small businesses and start-ups.
Rates for corporate tax
- Taxable income up to AED 375,000 = 0%.
- Taxable greater than AED 375,000 = 9%.
For multinational corporations that satisfy the “Pillar Two” requirements of the Base Erosion and Profit Shifting Project of the OECD, an extra tax rate (yet to be determined).
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