UAE Implementation of the Federal Corporate Tax in 2023

In the UAE, Corporate Tax (CT) came into force on June 1, 2023, in accordance with Federal Decree-Law No. 47 of 2022. The UAE Ministry of Finance has introduced new principles for taxing companies, setting a standard rate of 9% on the adjusted accounting net profits of a business above 375,000 AED. Businesses only need to file corporate tax returns yearly and don’t have to pay taxes beforehand or prepare provisional tax returns.

UAE Corporate Tax Rate

According to the Ministry of Finance, corporate tax applied to a business’s adjusted accounting net profits exceeding 375,000 AED (US$102,000) and is expected to be highly competitive globally. The Corporate Tax Rates in UAE are as follows:

• 0% for taxable income up to AED 375,000
• 9% for taxable income exceeding AED 375,000
• 15% for large international multi-nationals (with global revenues surpassing AED3.15 billion)

Resident Taxable Persons:

                      Taxable Income up to AED 375,000        =  0%

(the exact amount to be confirmed by a Cabinet Decision)

                     Taxable Income surpassing AED 375,000 = 9%

Qualifying Free Zone Persons:

                                                               Qualifying Income: 0%

Taxable Income not meeting the Qualifying Income criteria: 9%

CT will apply to:

• All businesses and individuals involved in commercial activities under a valid license in the UAE.
• Free zone businesses (The UAE CT regime will continue to respect the CT incentives currently available to compliant free zone businesses that meet all regulatory criteria and refrain from conducting business setups in the UAE mainland.)
• Foreign entities and individuals, solely if they engage in trade or business within the UAE on a consistent or regular basis.
• Banking operations.
• Businesses participating in real estate management, construction, development, agency, and brokerage activities.

CT will not apply to

• Income from salary and other employment sources, irrespective of whether it is from the public or private sector, is earned by an individual.
• Interests and other earnings from bank deposits or savings schemes received by an individual.
• Income from dividends, capital gains, interests, royalties, and other returns on investments made by foreign investors.
• Personal real estate investments made by individuals.
• Dividends, capital gains, and other earnings from owning shares or securities in their personal capacity received by individuals.

Corporation Tax Exemptions

Here are the rules for exemptions from the corporate tax:

• Companies involved in natural resource extraction are free from Corporate Tax (CT) as they will continue to be subject to current Emirate-level corporate taxation.
• Dividends and capital gains stemming from qualifying shareholdings of UAE businesses will not be liable for CT.
• Intra-group transactions and reorganizations that meet specific criteria will be CT-exempt, subject to meeting necessary conditions.

What is a corporate tax imposed on?

Corporate Tax is imposed on the taxable income earned by an individual or entity within a specific tax period. Typically, this tax is levied on an annual basis, with the liable entity calculating the Corporate Tax themselves through a self-assessment process. This involves the submission of a Corporate Tax Return to the Federal Tax Authority by the liable party for the assessment and payment of the Corporate Tax.

To calculate the taxable income, the initial step involves considering the accounting income of the liable entity, which refers to the net profit or loss before taxes according to their financial statements. Subsequently, the entity must make specific adjustments to ascertain the taxable income for the relevant tax period. For example, adjustments may be necessary for income exempt from Corporate Tax and for expenses that are wholly or partially non-deductible for Corporate Tax purposes.

Who is subject to Corporate tax?

In general, Corporate Tax is applicable to the following known as “Taxable Persons”:

• UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE;
• Natural persons (individuals) who conduct a Business or Business Activity in the UAE as specified in a Cabinet Decision to be issued in due course; and
• Non-resident juridical persons (foreign legal entities) that have a Permanent Establishment in the UAE (which is explained under [Section 8]).

Juridical persons established in a UAE Free Zone are also subject to Corporate Tax as “Taxable Persons” and must adhere to the regulations specified in the Corporate Tax Law. However, a Free Zone entity meeting the criteria for being a Qualifying Free Zone Person can avail a 0% Corporate Tax rate on their Qualifying Income (the conditions are outlined in Section 14).

Non-resident persons without a Permanent Establishment in the UAE or those earning income from the UAE unrelated to their Permanent Establishment might face Withholding Tax (at a rate of 0%). Withholding tax is a kind of Corporate Tax collected at the source by the payer on behalf of the income recipient. Withholding taxes are present in various tax systems and generally pertain to cross-border payments such as dividends, interest, royalties, and other forms of income.

Conclusion

The Federal Tax Authority (FTA) will oversee the management, collection, and implementation of the Corporate Tax (CT). On its website, the FTA offers additional resources and guidance on corporate tax, including information on registration and filing procedures. If you face any challenges during the registration and filing process, BRISK is available to offer assistance.

The FTA has introduced penalties and fines for corporate tax violations in the UAE. If you require assistance with Corporate Tax Registration services, please don’t hesitate to reach out to us.

To seek corporate tax advice and gain a comprehensive understanding of the corporate tax system in the UAE, you can get in touch with our team. Our tax specialists at BRISK can assist your business in ensuring compliance with regulations and help prevent the incurring of penalties.