All about the New Corporate Tax Law in UAE

by Sweta Bose 09, Nov 2022

corporate tax law in uae

In the UAE, corporations and other organizations must pay a direct tax on their net income or profits from their operations. "Corporate Income Tax" or "Business Profits Tax" also goes by these names.

Except for resource extraction, which will continue to be taxed at the Emirate level, all businesses operating in the UAE will be subject to the Emirates Corporate Tax.

Corporate tax will only apply to international companies and individuals who regularly conduct trade or business in the UAE.

All profits and other (net) income included in the financial statements prepared in line with generally accepted accounting principles are subject to UAE Corporate Tax in the same manner.

The UAE Corporate Tax Rate

A tier system with three rates is introduced under the Corporate Tax regime for business setup in UAE:

  • Under AED 375,000, all annual taxable profits are subject to nil rates
  • A 9% rate will apply to all taxable profits over AED 375,000 per year
  • As per OECD Base Erosion and Profit-Sharing regulations, ALL MNEs that fall under the purview of Pillar 2 of the BEPS 2.0 framework (i.e., have consolidated global revenues over AED 3.15 billion) shall be subject to various rates.

Effective Dates of the New Corporate Tax Law in UAE

The UAE Corporate Tax will be in effect for fiscal years beginning on or after June 1, 2023.

Any firm or business that chooses to use a calendar year that starts on January 1 and ends on December 31 of 2023 will be subject to corporate tax beginning on January 1 of the year after (i.e., 2024), and filing will likely be necessary for the middle of 2025.

Principal Elements of the Corporate Tax in UAE

The principal elements of the corporate tax in the UAE are as follows:

  • Individuals are not liable to corporation tax on income from work, real estate, stock investments, or other sources unconnected to a trade or business in the UAE
  • Foreign investors who do not conduct business in the UAE will not be subject to corporate tax
  • The business's adjusted accounting net profit will be subject to corporate tax
  • Businesses operating in free zones are still entitled to corporation tax advantages as long as they follow all rules
  • Corporate taxes on resource exploitation will still apply at the Emirate level
  • On both domestic and international payments, there will be no withholding tax
  • A UAE business's capital gains and dividends from its eligible shareholdings will not be subject to corporate tax
  • On qualified intragroup transactions and restructurings, no corporate tax will be due
  • It will be possible to offset the amount of payable UAE corporate tax with foreign tax credits
  • Businesses can use excellent loss transfer and utilization laws.

Exempt from the Corporate Income Tax UAE

The corporate tax also has some exemptions, and apart from the ones mentioned below, we can also assist you with tax consulting in Dubai, UAE. The following income is often excluded from the corporate income tax:

  • Dividends a UAE-based company has received from its allowable shareholdings (to be defined in the law)
  • Monetary gains
  • Gains from group restructuring
  • Intra-group transaction profits.

No withholding taxes from the UAE will be applied to payments made domestically or abroad. It can be assumed that the Law will incorporate a participation exemption or other comparable ideas frequently found in international markets concerning the exempt income scheme.

If a business wants to benefit from the exempt income plan, it must determine whether it can meet the necessary standards. The UAE's key goals in enacting the Corporate Tax are:

  • Enhancing the UAE's position as a top international trade and investment hub
  • Respecting international standards for tax transparency and avoiding harmful tax practices
  • Accelerating the UAE's development and transformation to achieve its key objectives.

The United Arab Emirates Corporate Tax Rate Extent

The UAE government has said that all businesses and employees in the country hold current commercial licenses. The corporate tax incentives now provided to free zone enterprises that comply with all legal criteria and do not have their headquarters located on the UAE's mainland will continue to be honored by the UAE corporate tax regime.

The only eligible foreign entities and individuals are those who regularly or continuously conduct trade or commerce in the UAE. Like banking activities, businesses or firms engaged in real estate management, development, construction, agency, and brokerage.

We at Commitbiz Management Consultants will cater to all your needs. Do contact us with any queries regarding tax and company formation.

We assure you with a hassle-free procedure and a dream business setup.

FAQs

When will the corporate tax be implemented in the UAE?

The UAE Corporate Tax will be in effect for fiscal years beginning on or after June 1, 2023.

What is the corporate tax rate in the Emirates?

9%.

Who will have to pay the UAE corporate tax?

It will apply to all taxable profits over AED 375,000 per year.

What are the key goals of enacting the corporate tax in the UAE?

The key goals are as follows:

  • Enhancing the UAE's position as a top international trade and investment hub
  • Respecting international standards for tax transparency and avoiding harmful tax practices
  • Accelerating the UAE's development and transformation to achieve its key objectives.

Which types of income are exempted from the UAE corporate income tax?

The following income is often excluded from the corporate income tax:

  • Dividends a UAE-based company has received from its allowable shareholdings (to be defined in the law)
  • Monetary gains
  • Gains from group restructuring
  • Intra-group transaction profits.

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