Corporate Taxation in the United Arab Emirates was launched
What is Corporate Tax?
Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses.
Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.
Why is the UAE introducing CT?
A competitive CT regime based on international best practices will cement the UAE’s position as a leading global hub for business and investment, and accelerate the UAE’s development and transformation to achieve its strategic objectives
Introducing a CT regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices
Is the UAE the first country to introduce CT?
Most countries in the world have a comprehensive CT regime, including most of the GCC Member States
When will the UAE CT regime become effective?
The UAE CT regime will become effective for financial years starting on or after 1 June 2023
- A business that has a financial year starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE CT from 1 July 2023 (which is the beginning of the first financial year that starts on or after 1 June 2023)
- A business that has a (calendar year) financial year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE CT from 1 January 2024 (which is the beginning of the first financial year that starts on or after 1 June 2023)
Will UAE CT be applicable to businesses in each Emirate?
The UAE CT is a Federal tax and will therefore apply across all Emirates
What will be the role of the Federal Tax Authority?
The Federal Tax Authority will be responsible for the administration, collection, and enforcement of UAE CT
What will be the role of the Ministry of Finance?
The Ministry of Finance will remain the ‘competent authority’ for purposes of bilateral/multilateral agreements and the international exchange of information for tax purposes
Who will be subject to UAE CT?
UAE CT will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation
How do you determine whether a legal entity has a “business” that will be within the scope of UAE CT?
All activities undertaken by a legal entity will be deemed “business activities” and hence be within the scope of UAE CT
How do you determine whether an individual has a “business” that will be within the scope of UAE CT?
This would generally be done by reference to the individual having (or being required to obtain) a business license or permit to carry out the relevant commercial, industrial, and/or professional activity in the UAE
How do you determine the business profit / income that will be subject to UAE CT?
The taxable income will be the accounting net profit of a business, after making adjustments for certain items to be specified under the UAE CT law
The accounting net profit of a business is the amount reported in the financial statements prepared in accordance with internationally acceptable accounting standards
What will the UAE CT rates be?
The CT rates are:
- 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
What is meant by “large” multinationals?
A multinational corporation is a corporation that operates in its home country, as well as in other countries through a foreign subsidiary, branch, or other forms of presence/registration. Merely earning income from outside its home country without a foreign presence or registration would not make a business a multinational corporation
In the context of the global minimum effective tax rate as proposed under ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project,” large” refers to a multinational corporation that has consolidated global revenues in excess of EUR 750m (c. AED 3.15 bn)
Will an individual’s salary income be subject to UAE CT?
UAE CT will not apply on an individual’s salary and other employment income (whether received from the public or private sector)
Will an individual who has a commercial license to carry out business in the UAE be subject to UAE CT?
Business income earned under a commercial license will be within the scope of UAE CT