The UAE Ministry of Finance announced the introduction of federal corporate taxation on business profits on 31st January 2022. This tax will apply to business profit for financial years starting on or after 1st June 2023.
Why and What is Corporate Tax in UAE?
Through the introduction of CT in the UAE, the UAE will further strengthen its position as a world center for business and investment, increase compliance with international standards on tax transparency and prevent damaging tax practices, as well as accelerate its development and transformation towards achieving its strategic objectives.
In the UAE, corporate tax is a direct tax levied on the profits and earnings of corporations and other entities. UAE CT is considered the world’s most competitive and has the lowest price amongst GCC countries. As the UAE CT legislation is currently being finalized, this is only an introduction to the proposed UAE CT law.
UAE's CT regime : Key features
1. UAE CT Inclusions
- UAE CT will be applicable across all Emirates and to all business and commercial activities, except for the extraction of natural resources, which will remain subject to Emirate level taxation.
- Banking operations, which are currently taxed at the Emirate level, will be subject to CT.
- Business engaged in real estate management, construction, development agency and brokerage activities.
- Any business carried out by a legal entity.
- Activities performed under a freelance license or permit.
- Individuals with a commercial license and generating income through their business.
2. Corporate Tax Rate
3. Tax Base
After making the necessary adjustments as prescribed in the UAE CT law, the UAE CT rate will be applied to the net profits as reported in financial statements that are complied with internationally acceptable accounting standards.
4. Exemptions from the UAE Corporate Tax
- Individuals who receive income from employment, real estate, investment in shares, or other sources not related to UAE trade or business are not subject to corporate tax.
- A UAE business will not pay UAE CT on dividends and capital gains it earns from qualifying shareholdings. Qualifying shares refer to any ownership stake in a UAE or foreign company that meets the conditions specified in the UAE CT Law.
- CT will not applicable to Qualifying intragroup transactions and reorganizations based on certain criteria.
5. Corporate Tax in Free zones
- Businesses operating in UAE free zones must comply with UAE CT
- however; Business owners operating within free zones that comply with all regulatory requirements and do not conduct business on the mainland of the UAE will continue to be eligible for the corporate tax incentives currently offered to them.
- Free zone business is required to register and file CT returns.
6. Corporate Tax on Foreign Person
- Companies or individuals from countries outside the UAE will be subject to Corporate Tax only if they are engaged in an ongoing or regular trade or business in the UAE.
- In addition, a foreign investor's dividends, capital gains, interest, royalties, and other investment returns will generally not be subject to Corporate Tax in the UAE.
7. Transfer Pricing : Applicability
- In the UAE, businesses need to comply with transfer pricing rules and documentation requirements outlined in the OECD's transfer pricing guidelines.
8. Carry Forward and setoff of losses
- In the UAE, the CT law allows businesses to offset taxable income from previous financial periods with their tax losses, provided certain conditions are met. Excess tax losses may be carried forward and applied to taxable income in the future.
- Similarly, tax losses from one group company may be used to offset taxable income of another group company (subject to certain conditions).
9. Foreign Tax credit
- UAE corporate tax liability will be offset by foreign corporate tax paid on UAE taxable income.
10. Withholding Tax
- The new Corporate Tax regime clarifies that withholding tax will not apply to domestic or cross-border payments of any kind.
11. Tax Credit
- Companies paying corporate taxes outside the UAE on their UAE taxable income will receive a tax credit against their UAE CT liability.
12. Regulatory Authority and Compliances
- Administration, collection, and enforcement of corporate tax will be the responsibility of the Federal Tax Authority.
- while Ministry of Finance will remain the ‘competent authority’ for purposes of bilateral/multilateral agreements and the international exchange of information for tax purposes.
- Non-compliance will result in strict penalties.
How DARTC can help you:
As advisors, DARTC has built and continues to maintain a reputation of providing quality and reliable services. With our constant updates on today's changing business and economic conditions, we are committed to providing exceptional value to the marketplace. Compared to other firms, DARTC stands out for its high standards, services, and specialized staff. We ensure that every client receives the expertise of not only their personal account manager, but the entire firm as well.
As tax advisors, we can assist with:
- Providing guidance on the risks and challenges of corporate taxation
- Examining the impact and applicability of corporate tax on businesses
- Restructuring the business and operational model with tax planning assistance
- Consultation regarding the use of Foreign Tax Credit paid by taxpayers residing in other countries
- Providing assistance in registering companies for tax purposes with the relevant authorities. Calculating and filing tax returns.
- Providing to tax authorities written submissions assisting in filing the response to the notices received from tax authorities.
- Representing taxpayers before tax authorities and appealing adverse tax adjustments or penalties imposed by tax authorities. Filing a written appeal to contest adverse tax adjustments or penalties.
- Training tax and finance teams of UAE companies on the proposed UAE CT regime.
Get in touch with us for more information!
Frequently Asked Questions on UAE Corporate Tax.