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.
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.
Most countries in the world have a comprehensive CT regime, including most of the GCC Member States.
The UAE CT regime will become effective for financial years starting on or after 1 June 2023 Examples:
The UAE CT is a Federal tax and will therefore apply across all Emirates
The Federal Tax Authority will be responsible for the administration, collection, and enforcement of 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
All activities undertaken by a legal entity will be deemed “business activities” and hence 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 licence or permit to carry out the relevant commercial, industrial and/or professional activity in the UAE.
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.
The CT rates are:
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 form 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)
UAE CT will not apply on an individual’s salary and other employment income (whether received from the public or private sector)
Business income earned under a commercial license will be within the scope of UAE CT.
The investment in real estate by individuals in their personal capacity should not be subject to UAE CT provided the individual is not required to obtain a commercial license or permit to carry out such activity in the UAE.
Individuals will not be subject to UAE CT on dividends, capital gains and other income earned from owning shares or other securities in their personal capacity
UAE CT will generally apply to income earned from activities carried out under a freelance license / permit, albeit no CT will be payable unless the annual net income of the freelance professional exceeds AED 375,000.
Interest and other income earned by an individual from bank deposits or saving schemes will not be subject to UAE CT.
The CT liability will be calculated as follows:
The UAE CT liability for the year will be AED 0 + AED 2,250 = AED 2,250
The final amount of UAE CT payable will be reduced by any foreign taxes incurred on the relevant income (see below under ‘Tax Credits’ section)
Businesses engaged in the extraction of natural resources will remain subject to Emirate level corporate taxation and be outside the scope of UAE CT Information on other UAE CT exemptions and exclusions will be provided in due course
Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from UAE CT.
A qualifying shareholding refers to an ownership interest in a UAE or foreign company that meets certain conditions to be specified in the UAE CT law.
Qualifying intra-group transactions and reorganizations will not be subject to UAE CT provided the necessary conditions are met.
Foreign entities and individuals will be subject to UAE CT only if they conduct a trade or business in the UAE in an ongoing or regular manner
UAE CT will generally not be levied on a foreign investor’s income from dividends, capital gains, interest, royalties and other investment returns.
Free zone businesses will be subject to UAE CT, but the 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.
A business established in a free zone will be required to register and file a CT return. Further details on the compliance obligations of free zone businesses will be provided in due course.
The UAE CT treatment that will apply to businesses in free zones will be the same across all free zones
Businesses engaged in the extraction of natural resources will remain subject to Emirate level corporate taxation and be outside the scope of the UAE CT.
Banking operations will be subject to UAE CT Further details on the current Emirate level corporate taxation will be provided in due course.
Businesses engaged in real estate management, construction, development, agency and brokerage activities will be subject to UAE CT
The UAE CT regime will allow a business to use losses incurred (as from the UAE CT effective date) to offset taxable income in subsequent financial periods.
A loss for CT purposes (tax loss) would arise when the total deductions the businesses can claim are greater than the total income for the relevant financial period.
Excess tax losses may be carried forward and used against taxable income in future years, provided certain conditions are met.
Further information on the UAE CT loss carry-forward rules will be provided in due course.
Tax losses from one group company may be used to offset taxable income of another group company, provided certain conditions are met Further information on the group loss utilisation rules will be provided in due course
A UAE group of companies can elect to form a tax group and be treated as a single taxable person, provided certain conditions are met.
A UAE tax group will only be required to file a single tax return for the entire group.
Withholding tax is tax collected at source by the payer on behalf of the recipient of the income
Withholding taxes exist in many tax systems and are typically used in respect of dividends, interest, royalties and similar payments.
UAE withholding tax will not be applicable on domestic and cross-border payments of any nature under the UAE CT regime.
Foreign CT paid on UAE taxable income will be allowed as a tax credit against the UAE CT liability.
Transfer pricing rules seek to ensure that transactions between related parties are carried out on arm’s length terms (i.e. as if the transaction was carried out between independent parties)
UAE businesses will need to comply with transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing Guidelines
Yes. More information on the registration process and ongoing compliance obligations for businesses will be provided in due course
Only one CT return will need to be filed per financial period. No provisional or advance CT filings will be required.
A financial period is generally a year.
The CT return will need to be filed electronically. Further guidance will be issued in this regard in due course.
UAE businesses will not be required to make advance UAE CT payments
Similar to other taxes in the UAE (e.g. VAT), businesses will be subject to penalties for non- compliance with the CT regime. Further information on the UAE CT compliance obligations and applicable penalties will be released in due course.
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