28-Jun-2022 Corporate Tax published in UAE

The Corporate Tax Law provides the legislative basis for the introduction and implementation of a Federal Corporate Tax (“Corporate Tax”) in the UAE and is effective for financial years starting on or after 1 June 2023.

The introduction of Corporate Tax is intended to help the UAE achieve its strategic objectives and accelerate its development and transformation. The certainty of a competitive Corporate Tax regime that adheres to international standards, together with the UAE’s extensive network of double tax treaties, will cement the UAE’s position as a leading jurisdiction for business and investment.

Click to Download UAE Corporate Law

What is Corporate Tax?

Corporate tax is a form of direct tax levied on the net income or profit of the companies and other entities from their business.

Corporate tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.

Why UAE is Introducing Corporate Tax?

A competitive Corporate Tax regime based on international best practices will cement the UAE’s position as a leading global hub for business and investment and accelerate the UAE’s development and transformation to achieve its strategic objectives.

Introducing a Corporate Tax regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices.

Scope:

The UAE Corporate Tax is a Federal Tax and will therefore apply across all Emirates. 

UAE Corporate Tax will apply to all UAE businesses, except for the extraction of natural resources, which will remain subject to Emirate-level corporate taxation.

Foreign entities and individuals will be subject to Corporate Tax only if they conduct a trade or business in the UAE in an ongoing or regular manner.

 

UAE Corporate Tax will apply equally to all categories of profits and other (net) income reported in the financial statements prepared in accordance with internationally acceptable accounting standards.

All activities undertaken by a legal entity will be deemed “business activities” and hence be within the scope of UAE Corporate Tax..

Tax Rate:

The Corporate Tax Rates are:

1.  1.  0% for taxable income up to AED 375,000;

•   2. 9% for taxable income above AED 375,000; and

•    3. a different tax rate for large multinationals that meet specific criteria set with reference to 'Pillar Two' of the OECD Base Erosion and Profit Shifting project

Example:

If a business has earned taxable income of AED 400,000 in a given financial year, what will be the UAE Corporate Tax amount payable?

The Corporate Tax liability will be calculated as follows:

•   1. Taxable income of AED 0 - AED 375,000 at 0% = AED 0
•   2. Portion of taxable income exceeding AED 375,000 (i.e. AED 400,000 - AED 375,000 = AED 25,000) at 9% = AED 2,250

The UAE Corporate Tax liability for the year will be AED 0 + AED 2,250 = AED 2,250

Income Exempt from Corporate Tax:

There are certain categories of transactions which are Exempt from Corporate Tax. Below are such categories of transactions:

• 1. Businesses engaged in the extraction of natural resources as these businesses will be subject to Emirate level corporate taxation and be outside the scope of UAE Corporate Tax
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2.Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from UAE Corporate Tax.

3.Qualifying intra-group transactions and reorganizations will not be subject to UAE Corporate Tax provided the necessary conditions are met.

Out of Scope Transactions

There are certain categories of transactions which are kept outside the purview of Corporate Tax. Below are such categories of transactions:

1. 1.UAE Corporate Tax will not apply on an individual’s salary and other employment income (whether received from the public or private sector).
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3. 2. Interest and other income earned by an individual from bank deposits or saving schemes will not be subject to UAE Corporate Tax.

3.Individuals will not be subject to UAE Corporate Tax on dividends, capital gains and other income earned from owning shares or other securities in their personal capacity.

4.The investment in real estate by individuals in their personal capacity should not be subject to UAE Corporate Tax provided the individual is not required to obtain a commercial license or permit to carry out such activity in the UAE.

5.UAE Corporate Tax will generally not be levied on a foreign investor’s income from dividends, capital gains, interest, royalties and other investment returns