Introduction of Corporate Tax in the UAE

The Ministry of Finance has announced the introduction of Federal Corporate Tax (CT) in the UAE effective from financial years commencing on or after 1 June 2023.

CT will be applicable to all businesses in UAE on tax profits after minimal adjustments to book profits reported in financial statements prepared in accordance with internationally accounting standards. A business is considered as a separate legal person requiring a license or permit to carry out the relevant commercial, industrial and/or professional activity in the UAE.

The rates for CT will be:

• 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.

Below are some of the key features clarified in relation to CT:

• CT to be applicable to businesses in all the Emirates;
• CT will apply on all types of businesses except extraction of natural resources, which will remain subject to Emirate level CT. Guidance on the treatment of banking activities to be issued by FTA;
• Salary, capital gains and returns earned from non-business activities will not be subject to CT;
• Free zone businesses will be subject to UAE CT. 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;
• UAE businesses shall be exempted from CT on capital gains and dividends received from specified shareholdings;
• No withholding tax at domestic or international level shall be levied. Also, foreign tax credit will be allowed to set off the domestic CT liability;
• Tax losses may be allowed to be adjusted with group companies;
• Transfer pricing rules and documentation will apply as per OECD guidelines.
• The Federal Tax Authority will be responsible for the administration, collection, and enforcement of UAE CT;
• Compliance shall be kept at minimal with one CT return without need of making advance payment/ provisional tax payment/ return.

The Ministry of Finance intends to strengthen UAE’s position as a world leading hub for business and investment. The introduction of Corporate taxes displays UAE’s commitment to meet international standards for tax transparency and preventing harmful practices on profit shifting.

The FAQ’s on Corporate Tax are published by FTA here. Further guidance is expected from the FTA to help businesses get ready and be fully compliant.

Our detailed article on the FAQ’s and announcement on the Corporate Taxes will be released shortly.

If you have any questions, please reach out to our tax experts