CORPORATE TAX UAE
For some time now, the UAE’s new corporate tax has been the subject of much debate. Recently, the Ministry of Finance launched it in the Emirates. A company must pay corporate tax on the profits it makes throughout the tax year. Dubai has its own corporate tax laws that are in addition to the UAE tax laws and are applicable to businesses operating in the Emirate. However, only gas and petroleum industries as well as international bank branches that are present in Dubai are subject to these taxes.
What is Corporate Tax UAE?
The Federal Decree-Legislation No. 47 of 2022 on Taxation of Corporations and Businesses, commonly referred to as the “corporation tax law,” was published by the UAE. The corporate tax, also known as the Business Profits Tax, is a type of direct tax levied on the total profit or income of UAE-based businesses and corporations. Because this is a federal tax, it applies throughout the UAE. This tax will be competitive and applied to the entire area in accordance with best international practices, strengthening the Emirates’ position as the world’s best place for investment and doing business. Corporate Tax will also benefit the UAE’s transformation and development in order to attain the country’s strategic goals and targets.
Principal Elements of Corporate Tax in UAE
The following are the principal elements of the corporate tax in the UAE:
- Businesses operating in free zones that follow the rules are still eligible for corporate tax benefits.
- People are not liable for corporate tax on income from stock investments, work, real estate, and other sources that are unrelated to a business or trade operating in the UAE.
- Corporate tax will not be due on qualified intragroup transactions and restructurings.
- Corporate tax will not be applicable to foreign investors who do not do business in the UAE.
- Corporate tax will be applicable to the business’s adjusted accounting net profit.
- No withholding tax is applicable to international and domestic payments.
- Corporate tax on resource exploitation will be applicable at the Emirate level.
- You can offset the amount of due corporate tax with foreign tax credits.
Corporate Tax Rate in UAE
UAE corporate tax rate is set by the government. Following are the CT rates:
- 9% for taxable income above AED 375,000
- 0% for taxable income up to AED 375,000
- A different corporate tax rate for big multinationals that fulfill certain criteria set according to ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project.
Corporate Tax on Free Zones
Businesses established in free zones are required to pay UAE Corporate Tax. However, the regime will continue to honor the existing Corporate Tax incentives given to companies working in UAE free zones that do not conduct business in the mainland UAE and meet the regulatory requirements. Businesses in free zones must register and file a Corporate Tax return. To do things properly, check out the compliance obligations of businesses established in free zones. The same Corporate Tax treatment will be applied to all businesses in free zones.
Qualifying Free Zone Person
A Qualifying Free Zone Person is one who meets all of the following requirements:
- Maintains adequate substance in the State.
- Derives Qualifying Income as specified in a decision issued by the Cabinet at the
the suggestion of the Minister.
- Has not elected to be subject to Corporate Tax under Article 19 of this Decree-Law.
- Complies with Articles 34 and 55 of this Decree-Law.
- Meets any other conditions as may be prescribed by the Minister.
Important applications on Free Zones Entities:
- Transactions done by Freezone entities outside U.A.E will be 0%, thus no tax on the profit earned from foreign countries.
- Profit earned from trading within the same Freezone will be taxable at 0%.
- Profit earned from trading with entities in another free zone will be taxable at 0%.
- If the Freezone company has a branch on the mainland, then a 9% tax will be applicable on income earned by that branch from mainland sources, at the same time all other incomes except mainland sources, will be taxable at 0% for that branch.
- Companies registered in Freezone have group companies in the mainland, 0% will be applicable on transactions with the mainland group companies, however, mainland companies cannot claim any payments as deductions, made under transactions with Freezone group companies which means indirectly it will be taxed at 9% on mainland companies.
- If the freezone person located in the designated Freezone, sells goods to a mainland company and that mainland company is also importer of those goods in records, then 0% will be applicable on freezone person for such transactions.
- If Freezone company doesn’t have a branch in mainland, then also 0% tax will be applicable on freezone companies for passive incomes earned from mainland. The passive income includes interest, royalties, dividends, and capital gains from shares owned in the mainland companies.
- Income from certain regulated financial services directed at foreign markets will be taxed at 0%.
- Any other type of income (except mentioned above) earned by freezone companies will be taxed at 9%.
- If the freezone person has a permanent establishment on the mainland then it will lose tax incentives.
The introduction of corporation tax will have a significant impact on businesses running in the UAE. As a result, it is critical for businesses to understand how the new taxes will affect them.
Experts at Business 4 Business can advise you on how the new corporate tax will affect your company and how to properly equip it to ensure that it has the necessary structure and processes in place to handle your future tax responsibilities. We will help you navigate this new landscape and ensure your organization makes a smooth and seamless transition to the Corporate Tax era.
Please contact us if you have any questions about the implementation of corporate tax in the UAE or if you require any other company formation services in Dubai.