The introduction of Federal Corporate Tax in the UAE

The UAE’s Ministry of Finance (MoF) announced on 31 January 2022, the introduction of Federal Corporate Tax (CT) effective for accounting years starting on or after 1 June 2023.

The UAE’s MoF stated that the reason for introducing CT was to “reaffirm the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices”.

Start date – UAE CT will be imposed on businesses with an accounting year starting on or after 1 June 2023.  Any businesses with an accounting year end date of 31 December will be subject to UAE CT from 1 January 2024.

Who does it apply to – unlike the UK, CT in the UAE will be based on different thresholds.  Where a 0% tax rate will apply to the first AED 375,000 of taxable income.  This is predominately to support small businesses and startups.

Any taxable income exceeding the AED 375,000 threshold will be subject to a 9% tax rate.

It is worth noting that the UAE’s MoF also mentions “a different tax rate” for large multinational corporations with consolidated global revenues in excess of EUR 750m (AED 3.15bn). Although, this rate has not been explicitly mentioned as of yet, one would expect this rate to be 15% in line with the global minimum effective rate.

Key points

• UAE CT only applies to income from a UAE trade or business – although this does not include income from employment or investment income. Nonetheless, freelancers such as social media influencers, artists and contractors operating under a commercial license in the UAE will be subject to UAE CT.
• Foreign investors – who do not operate their business in the UAE will be exempt from CT.
• Free Zone businesses that meet the relevant requirements and do not operate in mainland Dubai – will be subject to UAE CT but can still benefit from the CT incentives currently being offered to free zone businesses. As such, free zone businesses will be required to register and file CT returns.
• Businesses engaged in the extraction of natural resources – will remain subject to Emirate level corporate taxation and be outside the scope of UAE CT.
• Dividends and capital gains – earned by a UAE business from its qualifying shareholdings will be exempt for UAE CT. In addition to, qualifying intra-group transactions and reorganisations provided certain conditions are met.
• No withholding tax – on any domestic and cross border payments.

Reporting – Similar to other forms of Tax in the UAE, the Federal Tax Authority (FTA) will be responsible for the enforcement of this new tax.  All filings and submissions will be dealt with electronically.

Further guidelines will be issued by the UAE’s MoF throughout 2022.

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