On 31 January 2022, the UAE Ministry of Finance (MOF) announced the introduction of Federal Corporate Tax (CT) on business profits effective for financial years starting on or after 01 June 2023, with a standard statutory tax rate of 9% and a 0% tax rate for taxable profits up to AED 375,000.
Following the announcement, the MOF released a Public Consultation Document on the proposed Corporate Tax (CT) regime in the United Arab Emirates (UAE) with the intent to obtain input/suggestions from stakeholders.
Subsequently, on 09 December 2022, the MOF released the much-awaited Federal Decree-Law No. 47 of 2022 – Taxation of Corporations and Businesses (CT law). The CT regime is effective for the financial years starting on or after 01 June 2023.
With a standard statutory tax rate of 0% on taxable profits up to AED 375,000 to support small businesses and start-ups and a 9% tax rate on taxable profits exceeding AED 375,000, the UAE CT rate will be the most competitive globally.
QUICK TAKEAWAYS
WHEN WILL IT APPLY?
- Effective for financial years starting from 01 June 2023
- Businesses with the calendar year (January to December) as financial year will be subject to UAE CT for the financial year January to December 2024
WHO IS SUBJECT TO CORPORATE TAX?
- Juridical persons established in the UAE
- Juridical persons effectively managed and controlled in the UAE
- Foreign juridical persons that have a Permanent Establishment in the UAE
- Individuals that are engaged in a business or business activity in the UAE, either directly or through an unincorporated partnership or sole proprietorship UAE headquartered banks and UAE branches of foreign banks
WHO IS EXEMPT FROM CORPORATE TAX?
- Government, their departments, authorities, and other public institutions.
- Wholly-owned government companies
- Extraction of UAE Natural resources and related non-extractive activities that are already subject to Emirate-level taxation.
- Public Benefit companies
- Investment Funds – subject to conditions
- Public or private pension or social security funds – subject to conditions
- UAE juridical persons that are wholly owned and controlled by certain exempted entities
WHAT IS THE RATE OF CORPORATE TAX?
- For individuals and Juridical persons
- 0% tax rate for taxable income up to AED 375,000 (threshold yet to be confirmed via Cabinet Decision)
- 9% tax rate for taxable income exceeding AED 375,000
- Qualifying Free Zone persons
- 0% on the qualifying income
- 9% on taxable income that does not meet the qualifying income definition
- While there is no reference to “Pillar Two” of BEPS in the CT law, the FAQs published by MOF indicate a separate tax regime for large multinationals with Global turnover exceeding Euro 750 million
WHAT IS SUBJECT TO CORPORATE TAX?
- For residents
- Income earned from business in the UAE
- Income earned from abroad – with certain exemptions and reliefs
- For Non-residents
- income from their Permanent Establishment in the UAE; or
- income sourced in the UAE (subject to a 0% withholding tax).
ARE FAMILY FOUNDATIONS SUBJECT TO CORPORATE TAX?
- Foundations and certain types of trusts would prima facie be subject to UAE CT in their own right.
- However, Foundations can apply to be treated as transparent “Unincorporated Partnerships” for UAE CT purposes, resulting in the founder/settlor and the beneficiaries of the trust to remain to be seen as owners of the assets held by the trust.
- The owners of the assets will be subject to CT in their personal capacity – refer to the previous section to understand tax implications.
TAX ADMINISTRATION
- Federal Tax Authority (FTA) responsible for the administration, collection, and enforcement of UAE CT
- MOF to remain ‘competent authority’ for purposes of bilateral/multilateral agreements and international exchange of information for tax purposes
- Businesses, including free zone businesses, required to register and comply with ongoing obligations
- Simplified compliance obligations for small businesses with a certain threshold yet to be defined by the MOF
- One CT return to be filed per financial period
- No provisional or advance CT filings required
- No withholding tax on domestic or cross-border payments
- Similar to other taxes in the UAE (e.g., VAT), businesses are subject to penalties for non-compliance with the CT regime
Authors
Yann Mrazek
Managing Partner(M/HQ)
Keerthi Voodimudi
Director – Tax
