Corporate Tax in UAE: 5 Major Developments

As we all know by this time that UAE will introduce a federal corporate tax on business profits effective for financial years starting on or after 01st June 2023. Corporate Tax is a tax on the profits of a Company. It may be noted that the UAE Corporate Tax is a federal tax hence applies to all Emirates.

The primary objective is to meet the international standards for transparency, prevent harmful tax practices and accelerating the development of the UAE.

Let’s discuss the five major updates of the UAE Corporate Tax (UAE CT)

1. Scope

1. All UAE businesses, except for the extraction of natural resources, will remain subject to Emirate level corporate taxation.
2. UAE Corporate Tax will not apply on personal income from employment, real estate investments, or on any other income earned by individuals that does not arise from a business or other form of commercial activity licensed or otherwise permitted to be undertaken in the UAE.

2. Rate

• 0% for taxable income up to AED 375,000 ;
• 9% for taxable income above AED 375,000 ;
• A different tax rate for large multinationals that meet specific criteria set as per OECD BEPSproject.

3. Free zones

Free zone businesses will be subject to UAE Corporate Tax, but the UAE Corporate Tax regime will continue to honour the corporate Tax incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE.

4. Tax Groups (“fiscal unity”)

A UAE group of companies can elect to form a tax group and be treated as a single taxable person, subject to the conditions. A UAE tax group will only be required to file a single tax return for the entire group.

5. UAE CT return

1. Only one Corporate Tax return will need to be filed per financial period. There is no provisional or advance CT filings.
2. The Corporate Tax return will need to be filed electronically.

It may be noted that there may be penalties for non-compliance with the UAE Corporate Tax and we are expecting further information and guidelines on the UAE Corporate Tax compliance to be released soon.