The tax landscape in the region changed once more on 31 January 2022 when the United Arab Emirates (UAE) Ministry of Finance (MoF) made the groundbreaking announcement that a new federal corporate income tax (CT) would be implemented in the UAE. This will apply to financial years beginning after or following 1 June 2023. The UAE, with a standard rate of 9%, has the GCC region’s lowest corporate income tax rate. The UAE CT regime was created to integrate best practices worldwide and reduce the compliance burden for businesses.
Introduction to Corporate tax
The UAE Federal Decree Law No. The UAE Federal Decree-Law No. 47 on Taxation of Corporations and Businesses (the “Corporate Tax Law”) states that businesses will be subject to corporate tax in UAE starting with their first financial year, which begins on or after 1 June 2023.
CT Objectives
The UAE introduces the CT to achieve the following goals:
● It will continue to be a global leader in business and investment.
● Accelerate its development and transformation to reach its strategic goals
● Reaffirm its commitment to meeting international standards regarding tax transparency and preventing tax fraud.
Scope
CT will apply to:
All individuals and businesses that engage in business activities under a commercial license in the UAE
Only foreign entities or individuals can conduct trade or business in the UAE if it is ongoing or regularly conducted.
Banking operations
Companies involved in real estate management, brokerage, construction, and development activities.
CT Exemptions
Here are the rules for exempting corporate taxes.
● CT does not apply to businesses that extract natural resources. These businesses are still subject to current Emirate corporate taxation.
● CT will not apply to capital gains and dividends from UAE businesses’ qualifying shareholdings.
● CT will not apply to qualified intra-group transactions or reorganizations, provided all conditions are met.
● Free zone businesses (The corporate tax in UAE regime will continue the CT incentives currently being offered for free to companies in the UAE that comply with all regulatory requirements.
CT does not apply to the following:
● An individual’s earnings salary and any other employment income, regardless of whether it is from the public sector or the private sector.
● Interest and other income that an individual can earn from savings or bank deposits
● Foreign investors’ income from dividends, capital gain, interest, royalties, and other investment returns
● Individuals can invest in real estate in their capacity.
● Individuals can earn dividends, capital gains, and other income by owning shares or securities in their capacity.
CT Rate
● Taxable income below AED 375,000 is exempted from tax at 0%
● For taxable income exceeding AED 375,000, 9 percent
● A different tax rate (not yet specified) is available for large multinationals that meet certain criteria. These criteria are set by reference to Pillar Two of the OECD Base Erosion and Profit Shifting Project.
Transfer Pricing rules
This is a significant change as intercompany transactions will need to be conducted at arm’s distance and should generally be supported with appropriate documentation. Businesses must review their existing arrangements and evaluate the effect on domestic and cross-border transactions.
The Federal Tax Authority will manage the CT’s administration, collection, and enforcement. FTA is soon to provide additional references and guides on corporate taxes and information about registering for returns and filing them on its website.
I&I Corporate Services assists clients in setting up their UAE business. We offer assistance to businesses looking to establish new companies, expand existing offshore businesses, or set up representative offices. We very well understand the UAE Corporate Tax law and UAE corporate tax rate, therefore you can connect with us for related issues.
We also offer solutions for clients who are not currently in the UAE. Without having to be physically present, we can help clients register their UAE companies. Our experts will provide high-level recommendations & solutions post understanding the nature of the business and requirements and assist in choosing the right company type/License/authority in UAE to set up their business.
