UAE CORPORATE TAX ( UAE CT )

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Introduction

On 31st January, 2022, the Ministry of Finance made a breakthrough announcement of introducing a Federal Corporate Tax in the UAE effective for financial years starting on or after 1st June, 2023 in its effort to confirm with the BEPS 2.0 initiative. Incorporating international best practices and ensuring minimal compliance burden on businesses, UAE’s corporate tax is also one of the lowest ensuring it continues to be a No or Only Nominal Tax Jurisdiction(Noon).

Following few months from the date of announcement, the MoF issued a Public Consultation Document giving a broader visibility to the proposed legislation.

Scope & Rate

The UAE Corporate Tax will be applicable to all businesses and commercial activities alike with the following slab rates

Taxable Income SlabCorporate Tax Rate
Taxable income upto AED 375,0000%
Taxable income above AED 375,0009%
Large Multinationals (with consolidated global revenue > AED 3.15Bn(Euro 750mn)Different tax rate (with reference to Pillar 2 of BEPS 2.0)

Taxable Persons:

  • Natural persons carrying on business/commercial activities (includes sole establishments, individual partners in an unincorporated partnership).
  • Legal Persons (LLC.,PSC,PJSC, other entities legally incorporate in UAE as well as foreign entities having permanent establishment in UAE.
    Note: Legal persons incorporated outside UAE that are effectively managed and controlled in UAE will be covered under the scope of UAE CT.

Exempted Persons:

1. Businesses engaged in the extraction and exploitation of UAE natural resources (Oil, natural gas, water & sand and rock deposits).
2. Federal and Emirate Governments and their departments.
3. Wholly Govt Owned UAE companies carrying out sovereign/mandated activities.
4. Charities & other public benefit organisations.
5. Regulated Pension funds.
6. Regulated Investment funds.

Free Zone Persons:

Whilst the companies and branches that are registered in a Free Zone (Free Zone Persons) will be within the scope of the UAE CT,UAE CT will continue to honor the tax incentives currently being offered to FZ persons that complies with all the regulatory requirements and maintains adequate substance.Businesses established in a free zone will be required to register and file a Corporate Tax Return.

Audit of financial statements is mandatory to benefit from the special exemption provided.

Basis of taxation

Residency is a key determinant in deciding the applicability of CT on business profits.
Resident person:

  • A legal person incorporated in UAE.
  • A natural person engaged in business/commercial activity in UAE.
  • Foreign company treated as resident if it is effectively managed and controlled in the UAE.

UAE resident companies will be subject to UAE CT on their worldwide income.

Foreign Persons:
Non-residents will be subject to UAE CT on:
● Taxable income from their Permanent Establishment in the UAE; and
● Income which is sourced in the UAE.

Taxable Income

To reduce complexity in the computation of CT, it is proposed that the ‘accounting net profit (loss)’ as per the financial statements will be considered for the computation of taxable income.For this purpose, financial statements should be prepared as per accounting standards and principles acceptable in the UAE (IFRS). However, small businesses and startups are allowed to use alternative reporting standards and simplified mechanisms.

Exempt Income

To avoid double taxation and recognizing its position as a leading holding company location, the following forms of income is proposed to be exempt:

  • Dividend and Capital gain tax earned by UAE company from its qualifying shareholding.
  • Foreign branch profit exemption, provided foreign branch subject to sufficient level of tax.
  • Income earned by a non-resident from operating or leasing aircrafts or ships used in international transport.
  • Employment and personal income earned by UAE and foreign nationals in their personal capacity.
  • Intra-group transactions and group reorganization profits subject to conditions.

Tax Groups

  • Group companies can register as single taxable person subject to conditions.
  • Parent company shall represent the group for tax purposes.
  • Each subsidiary’s accounts to be consolidated for computing taxable income.

Tax Period

  • Businesses will use their financial accounting period as their annual tax period. Where a business does not have a financial accounting period, their default tax period will be the Gregorian calendar year.

Registration and Deregistration

Every business to which corporate tax is applicable should register with FTA and obtain a Tax Registration number within the prescribed period.Where a business ceases to operate or ceases to be subject to CT due to any reason, it should apply to the FTA to be deregistered within 3 months from the date of cessation.

Filing, Payment and Refund

  • One tax return for each tax period.
  • Return filing and tax payment due date: Within 9 months from the end of the relevant tax period.

How can we help you?

Our team of experts can help you assess the challenges and opportunities UAE CT brings in.

  • Corporate Tax Consultancy Services.
  • Corporate Tax Training and Awareness.
  • Corporate Tax Registration Services
  • Preparation and filing of Tax Returns.
  • Representation Services before tax authorities.