What Is UAE Corporate Tax?
On 8th October 2021, the United Arab Emirates (“UAE”) (amongst 137 countries) agreed to implement the OECD’s Two-Pillar approach to reform its International Tax Framework and to implement a minimum Corporate Tax rate starting 2023.
Following this development, on 31 January 2022, the Ministry of Finance of the UAE announced the introduction of a Federal Corporate Tax regime on business profits effective for Financial Years starting on or after 1 June 2023.
Corporate Tax in UAE is a form of direct tax levied on the net income or profit of corporations and other businesses. Going forward, licensees operating in UAE will be required to assess the impact of the upcoming regulations to their business and undertake the necessary compliance. On this note, the UAE Tax Authorities have already stated that non-compliance will attract high rates of penalties.
How Much Is The UAE Corporate Income Tax Rate?
The UAE corporate tax rate that will be enforced on 1 June 2023 is set to be as follows:
| No. | Taxable Income / Category | Corporate Tax Rate (%) |
|---|---|---|
| 1. | Taxable income up to AED 375,000 | 0% |
| 2. | Taxable income over and above AED 375,000 | 9% |
| 3. | Large multinationals (having consolidated global revenue exceeding EURO 750 million – equivalent to AED 3.15 billion) that meet specific criteria set with reference to “Pillar Two” of the OECD Base Erosion and Profit Shifting Project | Different tax rate |
Free Zone (including financial free zones) businesses in UAE will be subject to Corporate Tax. However, it has been clarified that the Corporate Tax regime will continue to honor the corporate tax incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business in mainland UAE.
Businesses established in a free zone will be required to register and file a Corporate Tax Return.
Despite this, the UAE’s proposed corporation tax will remain lower than the other five GCC nations with its competitive rates, such as 10 percent in Qatar, 15 percent in Oman and Kuwait, and 20 percent in Saudi Arabia. However, this still works out to be a lower corporation tax than other Tax Jurisdictions. For example, a US-based tax foundation reports that the average top corporate tax rate in EU countries, OECD countries, and in the G7 stands at 21.3%, 23.04%, and 69%, respectively.
Income Tax In UAE For Foreigners
- UAE residents do not pay income taxes, regardless of their residency status.
- The tax laws of the countries where non-residents reside may still require them to pay income tax to their country of residence.
- Foreign pensions are not subject to UAE taxation.
- As part of the Automatic Exchange of Information (AEOI) system, the UAE has signed up to the Common Reporting Standard (CRS). To put it simply, CRS is a legal standard through which countries can exchange tax information. Tax evasion can be investigated using this data.
Exemptions From Corporate Income Tax
According to the Ministry of Finance, the following categories of income will be excluded from the CT regime:
- Dividends and capital gains obtained by a UAE corporation through qualifying shareholdings (i.e., an ownership stake in a UAE or international company that fulfills specific standards set out in the UAE CT legislation.
- Intra-group transactions and reorganizations that meet specific standards set down in the UAE CT legislation.
- International businesses and people that do not conduct continuous or regular trade or commerce in the UAE; and
- Dividends, capital gains, interest, royalties, and other investment returns earned by overseas investors.
Businesses engaged in the extraction of natural resources will remain subject to Emirate level corporate taxation and be outside the scope of the UAE CT.
Banking operations will be subject to UAE CT.
Tax 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 Further information on the group loss utilisation rules.
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
Tax base
CT will be levied on UAE enterprises’ earnings as reported on their financial accounts produced in compliance with globally accepted accounting standards, with a few exceptions and adjustments. Losses incurred by CT-affected firms may be carried forward and offset against future taxable income if certain requirements are satisfied. Certain requirements must be completed before tax losses can be applied to another group company’s taxable income.
Other Requirements
- Only one CT return will need to be filed per financial period. No provisional or advance CT filings will be required. A financial period is generally a year.
- The CT return will need to be filed electronically.
- UAE businesses will not be required to make advance UAE CT payments
- Similar to other taxes in the UAE (e.g. VAT), businesses will be subject to penalties for non-compliance with the CT regime. Further information on the UAE CT compliance obligations and applicable penalties will be released in due course
Corporate Tax Registration – UAE
- CT Registration in UAE is required for all businesses.
- All CT Filing in UAE should be done to avoid any type of penalties.
- Accounting for Corporate Tax should be done by Corporate Tax Consultants in UAE.
Level CT Consultancy
Feel free to contact us if you need advice or guidance on the potential impact of CT on the UAE’s organization and operations. Our corporate team of CT consultants in Abu Dhabi or Dubai and CT consultants in UAE, will provide the necessary support for potential restructuring, pre-transaction preparation, valuation reviews, and strong tax exemption and negotiation of terms in UAE transaction documents after the CT Act is fully enforced. Be assured our Tax Consultants in Abu Dhabi or Dubai are FTA approved CT consultants in UAE.