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Corporate Tax in UAE

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The UAE is proposing to introduce a Federal Corporate Tax on net income or profit of corporations and other businesses – with proposed standard rate of 9% – for financial year starting on or after 1 June 2023.

Key highlights of UAE Corporate Tax

  • The UAE CT is a Federal tax and will therefore apply across all Emirates.
  • UAE CT will apply to all UAE businesses and commercial activities alike except for the extraction of natural resources.
  • All activities undertaken by a legal entity will be deemed “business activities” and hence be within the scope of UAE CT. Includes activities of freelance license / permits
  • The taxable income will be the accounting net profit of a business, after making adjustments for certain items to be specified under the UAE CT law.
  • The accounting net profit of a business is the amount reported in the financial statements prepared in accordance with internationally acceptable accounting standards
  • The CT rates are:
    • 0% for taxable income up to AED 375,000;
    • 9% for taxable income above AED 375,000; and
    • 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.
    • The final amount of UAE CT payable will be reduced by any foreign taxes incurred on the relevant income
  • Tax on Salary
    • UAE CT will not apply on an individual’s salary and other employment income (whether received from the public or private sector)
  • Investment in Real Estate
    • The investment in real estate by individuals in their personal capacity should not be subject to UAE CT provided the individual is not required to obtain a commercial license or permit to carry out such activity in the UAE.
  • CT on Investment income, bank deposit and other income of individual
    • Individuals will not be subject to UAE CT on dividends, capital gains and other income earned from owning shares or other securities in their personal capacity.
    • Interest and other income earned by an individual from bank deposits or saving schemes will not be subject to UAE CT.
  • Income exempt from UAE CT
    • Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from UAE CT.
    • ‘Qualifying’ shareholding? A qualifying shareholding refers to an ownership interest in a UAE or foreign company that meets certain conditions to be specified in the UAE CT law.
  • Free Zones
    • Free zone businesses will be subject to UAE CT, but the UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE.
    • A business established in a free zone will be required to register and file a CT return.
  • Losses
    • The UAE CT regime will allow a business to use losses incurred (as from the UAE CT effective date) to offset taxable income in subsequent financial periods.
    • A loss for CT purposes (tax loss) would arise when the total deductions the businesses can claim are greater than the total income for the relevant financial period.
    • Excess tax losses may be carried forward and used against taxable income in future years, provided certain conditions are met.
    • Tax losses from one group company may be used to offset taxable income of another group company, provided certain conditions are met.
  • Tax Group
    • A UAE group of companies can elect to form a tax group and be treated as a single taxable person, provided certain conditions are met.
    • A UAE tax group will only be required to file a single tax return for the entire group
  • Withholding Tax
    • No withholding tax will be applicable on domestic and cross-border payments of any nature under the UAE CT regime.
  • Tax Credit
    • Foreign CT paid on UAE taxable income will be allowed as a tax credit against the UAE CT liability.
  • Transfer Pricing
    • Transfer pricing rules seek to ensure that transactions between related parties are carried out on arm’s length terms (i.e. as if the transaction was carried out between independent parties).
    • UAE businesses will need to comply with transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing Guidelines.
  • Administration
    • Only one CT return will need to be filed per financial period. No provisional or advance CT filings will be required.
    • UAE businesses will not be required to make advance UAE CT payments

For more information: https://mof.gov.ae/corporate-tax/

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