UAE Corporate Tax
Corporate Income Tax
The United Arab Emirates, which is abode to the significant corporate gateway of Dubai, will continue to have one of the lowest corporate tax rates in the world. This proposal stems from the UAE’s intention to comply with international tax rules, reflecting similar efforts in other Gulf nations, while reducing regulatory burdens for UAE firms and protecting small businesses and start-ups.
GSPU Auditing assists you to comply with the guidelines of Corporate Tax in Dubai, which is applicable to all the enterprises and commercial activities throughout the UAE.
As announced on 31 January 2022, the United Arab Emirates (UAE) will introduce a federal Corporate Tax (CT) on business profits that will be effective for financial years starting on or after 1 June 2023. The UAE CT regime has been designed to incorporate best practices globally and minimise the compliance burden for UAE businesses.
Effective Date
The UAE has decided to implement corporate tax, which will enter into force for financial years beginning on or after June 1, 2023.
Proposed Rates
The following are the proposed corporate tax rates:
- A 0% tax rate applies to taxable income up to AED375,000
- A 9% tax rate applies to taxable income over AED375,000
- All multinational corporations subject to OECD Base Erosion and Profit-Sharing laws that belong within Pillar 2 of the BEPS 2.0 framework, i.e. combined worldwide revenues in excess of AED 3.15 billion will be entitled to varying rates
Why is the UAE introducing taxes on corporate income?
- Increasing the country’s status as a major commercial and investment centre
- To accelerate the UAE’s development and transformation in order to meet its strategic goals
- Addressing international tax transparency standards
- Keeping harmful tax methods out of the system
- To lessen its dependency on oil revenue
Scope of Corporate Income Tax(CIT)
The United Arab Emirates has implemented a federal tax structure that applies to all enterprises and commercial activity throughout the emirates. Let’s look at the scope of corporate taxation given below.
Besides the extraction of natural resources, which is presently liable to Emirate-level taxes upto 55% and the branches of foreign banks to whom 20% tax is applicable, the planned CIT regime is designed to be applicable to all commercial, industrial, and professional businesses in the UAE.
Businesses that are incorporated in Free zones must meet all regulatory standards and do not operate a business with the UAE mainland.
Apart from businesses involved in the production of natural resources such as oil and gas and branches of foreign banks, all UAE businesses will be liable for corporate tax.
All operations carried out by a legal body are considered “business activities” and are subject to the corporate tax framework.
Income exempted from CIT
- Dividends, capital gains, interest, royalties, and other investment gains earned by overseas investors.
- Dividend income from qualified shareholdings obtained by a UAE firm (to be defined in the law)
- Intra-group transactions and group reorganization profits
- Revenue comes from natural resource exploitation; and
- Profit earned by Branches of Foreign banks
- Foreign businesses and individuals that do not engage in continuous or frequent business activity in the UAE
How does Corporate Tax affect Foreign Direct Investment?
The implementation of a corporate tax is only one example of how the UAE is evolving and expanding rapidly. The government’s objective is to restructure the nation’s economy by shifting away from oil and gas dependency, and it is working to establish itself as a digital and technological powerhouse.
The UAE’s intent to alter its corporate structure and stick to international regulations can be seen in the first massive revamp of labor law, the removal of the necessity for a UAE national to own at least 51 percent of a UAE company, and the change of the working week from Sunday to Thursday to Monday to Friday. The UAE will keep enticing highly skilled professionals since employment income will remain tax-free, and no tax will be applied on income or profits derived from personal holdings. Yet, as a result of these developments, the cost of living and conducting business has risen.
Impact on UAE Free zones
Corporate Tax on UAE Free Zones shall depend on the nature of business activity, carried on by them, and the person, with whom business is carried out income.
Taxability of Free Zones | 0% Tax rate for certain income, but required to register and file Tax return |
Exempt income | Trading with other Free Zones, Income from overseas operations, financial regulated activities |
Taxable income | Income from branch in mainland |
Exemption condition | Adequate substance in the UAE and compliance with regulatory requirements |
UAE CT regime will continue to apply tax incentives which are currently offered to the companies and branches in Free Zone, provided : –
- Such entities maintain adequate substance in the UAE
- Such entities comply with all regulatory requirements
However, they will be subject to tax return filing requirements.
What are the Tax rates applicable to UAE Free Zones companies and branches ?
The Tax rates shall be 0% on following : –
- Income earned from transactions with businesses located outside of the UAE ;
- Income from trading with businesses located in the same of any other Free Zone;
- Income from certain regulated financial services directed at foreign markets.
The tax rates for Free Zone entities from transactions with mainland UAE (no mainland branch) shall be 0% only in respect of , ‘passive’ income like interest, royalties , dividends and capital gains from owning shares in mainland UAE companies.
What are the Tax rates applicable to UAE Free Zones with branches in the mainland UAE ?
A Free Zone company with a UAE mainland branch will be taxed at the regular CT rate on its mainland sourced income. However, benefit of 0% CT rate shall continue to be available on its other income.
What are the UAE CT on transactions between Free Zone Persons and their group companies located in mainland UAE ?
The tax rate on such transaction shall be 0% , but the payments made to the Free Zone Person by a mainland group company will not be a deductible expense for the mainland group company .
Disqualification from 0% tax for Free zone companies
Where the Freezone entity earns any other income from mainland , it will disqualify a Free Zone Person from the 0% CT regime in respect of all their income.
When the UAE introduces one of the world’s lowest corporate tax rates in June 2023, the UAE is expected to attract international firms. It may seem contradictory that taxing corporate profits will encourage investment and attract international corporations. However, if a country implements a competitive tax policy, it may become a desirable location for multinational companies seeking “transparent and dynamic” countries.
A business subject to CT will need to register with the FTA and obtain a Tax Registration Number within a prescribed period. The FTA can also automatically register a business for CT purposes if the person does not voluntarily do so.
Where a business ceases to be subject to the CT(e.g.,due to cessation or liquidation of the business), it will need to apply to the FTA to be deregistered for CT purposes within three (3)months from the date of cessation.
The FTA will only deregister a person where the FTA is satisfied that the person has filed CT returns and settled all CT liabilities and penalties (if any) due for all periods up to and including the date of cessation.
Where a person does not apply for deregistration within the time limits or comply with the payment and filing obligations, the FTA may deregister the person based on available information.
In order to keep the administrative burden on taxpayers to a minimum, a business will only need to prepare and file one tax return and other related supporting schedules with the FTA for each tax period. There will be no requirement for a business to file a provisional CT return and make advance payments of CT.
Each tax return and related supporting schedules will need to be submitted to the FTA within nine months of the end of the relevant Tax Period. For additional documentary support that may need to be provided to the FTA,
Payments to settle a taxpayer’s CT liability for a Tax Period will need to be made within nine months of the end of the relevant Tax Period. Where a tax payer can demonstrate that a CT refund may be due, the tax payer can apply to the FTA to request a refund.
The table below illustrates the CT filing and payment deadlines for businesses with financialyearendsof31 March,30June,and31December:
Illustrative time table for CT filing and payment deadlines | |||
Financial year end | 30June | 31December | 31March |
First Tax Period | 1July2023- 30June2024 | 1January2024-31 December2024 | 1April2024 – 31March2025 |
CT return must be filed, and CT payment made,with in nine(9)months of the tax period | |||
Filing & paymentduedate | 31March2025 | 30September2025 | 31December2025 |
- Individuals will not be levied Corporate tax on income generated from employment, real estate, investment in shares or other personal income that is not associated with UAE trade or business.
- Foreign investors who do not conduct business in the country will not be levied corporate tax.
- Corporate tax will apply to the adjusted accounting net profit of the business.
- Free zone businesses can still benefit from corporate tax incentives, provided they fulfil all the necessary requirements.
- The extraction of natural resources will be excluded from corporate tax, as it will remain subject to emirate level corporate taxation and also the branches of foreign banks
- Domestic and cross border payments will not be subjected to withholding tax.
- CT won’t be applicable for capital gains and dividends received by a UAE business from its qualifying shareholdings.
- CT won’t be applicable for qualifying intragroup transactions & restructurings.
- Foreign tax will be permitted to be credited against UAE corporate tax payable.
- Generous loss transfer and utilization rules will be available to businesses.
- Transfer pricing as per the OECD is applicable.
- Accounting profit, as per the international accounting standards.
With the introduction of corporate tax in the UAE, a major change is expected in the tax and compliance costs of most UAE businesses. Entities must be compliant with the new tax regime and this requires an accurate identification of tax implications and alterations to corporate structure, operating model(s), finance/tax operations, reporting systems, legal agreements and transfer pricing policies if required.
Our designated tax team atGSPU will provide the required assistance and clear your queries on corporate tax.
Contact us at info @ gspuuae.com
1. What is corporate tax?
Corporate tax is a form of direct tax charged on the net income or profit of corporations and other businesses.
2. Who will be subject to UAE Corporate Tax?
UAE CT will be applicable to businesses and commercial activities in the country. An exception is the extraction of natural resources, which will be under Emirate level corporate taxation.
3. What will the UAE CT rates be?
The CT rates are:
0% for taxable profit up to AED 375,000;
9% for taxable profit above AED 375,000
4. Will an individual’s salary income be subject to UAE Corporate Tax?
UAE CT will not apply on an individual’s salary and other employment income (whether received from the public or private sector).
5. Will an individual who has a commercial license to carry out business in the UAE be subject to UAE CT?
Business income earned under a commercial license will be within the scope of UAE CT.
6. Will an individual who invests in UAE real estate be subject to UAE CT?
Real estate investments by individuals in their personal capacity will not be subject to UAE CT, provided the individual is not required to obtain a commercial license or permit to carry out that activity in the UAE.
7. Will an individual be subject to CT on investment returns?
Individuals does not have to pay CT on dividends, capital gains and other income earned from owning shares or other securities in their personal capacity.
8. Will the income earned by a freelance professional be subject to UAE CT?
UAE CT will generally apply to income earned from activities carried out under a freelance license/permit.
9. Will income earned by an individual from bank deposits be subject to UAE CT?
Interest and other income earned by an individual from bank deposits or saving schemes will not be subject to UAE CT.
10. Will intra-group transactions be exempt from UAE CT?
Qualifying intra-group transactions and reorganizations will not be subject to UAE CT provided the required conditions are met.
11. Will a foreign company or individual be subject to UAE CT?
Foreign entities and individuals will be subject to UAE CT only if they carry out a trade or business in the UAE in an ongoing or regular manner.
12. Will income earned by a foreign investor be subject to UAE CT?
UAE CT will generally not be charged on a foreign investor’s income from dividends, capital gains, interest, royalties and other investment returns.
13. Will a free zone business be subject to UAE CT?
Free zone businesses will be subject to UAE CT, but the UAE CT regime will continue with the CT incentives that are being offered to free zone businesses that fulfill the regulatory requirements and that do not conduct business with mainland UAE.
14. Will a free zone business be required to register and file a CT return?
Yes, businesses established in a free zone will have to register and file a CT return.
15. Will the banking sector be subject to the UAE CT regime?
Yes, banking operations will be subject to UAE CT.
16. Will the real estate sector be subject to the UAE CT regime?
Businesses engaged in real estate management, construction, development, agency and brokerage activities will be subject to UAE CT.
17. Will excess CT losses be allowed to be carried forward and used in future years?
Excess tax losses may be carried forward and used against taxable income later, provided certain conditions are fulfilled.
18. Will businesses be required to register for UAE Corporate Tax purposes?
Yes, More information on the registration process and ongoing compliance obligations for businesses will be provided in due course.
19. How often will UAE businesses need to file a UAE CT return?
UAE businesses will have to file a CT return once in a financial year and this can be done electronically.
20. Will businesses be required to pay tax in advance?
No, UAE businesses need not make advance UAE CT payments.
21. What are the consequences for non-compliance under the CT regime?
Businesses that fail to comply with CT regime will have to pay penalty.
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