In the months leading up to the introduction of corporate tax, the United Arab Emirates Ministry of Finance launched the Corporate Tax Awareness Program. The program includes online and practical sessions to educate the business community on corporate tax law.

“This is aimed at disseminating as much information as possible and maximizing the audience that can attend the physical sessions,” said Shabana Begum, executive director of tax policy at the UAE Ministry of Finance. virtual”.

The ministry has announced that public awareness of Corporate Tax Uae will be opened in Abu Dhabi. While the sessions are open to the public, the primary target audience includes business leaders from all industries, including but not limited to CFOs, tax managers and directors, advisors, and legal and business owners.

WHAT IS CORPORATE TAX?

Under the new tax regime, companies and other businesses with taxable profits over MAD 375,000 will have to pay a standard tax rate of 9%. The tax will be in effect for years beginning on or after June 1, 2023.

WHO HAS THE RIGHT TO PAY CORPORATE TAXES?

Company tax applies:

• Entities incorporated in the UAE;
• Individuals (foreigners or residents) conducting business or commercial activities in the UAE; And
• Foreign legal entity with a permanent establishment in the UAE or managed and controlled in the UAE

In the absence of a permanent establishment in the UAE, dividends, interest, royalties, capital gains, service fees, and other income from the UAE earned by a foreign national will not cause tax liability for companies in the UAE. 

WHO ARE RESIDENTS AND NON-RESIDENTS?

The corporate tax applies to “taxable persons” who are determined to be residents or non-residents (residence for corporate tax is a concept defined as the UAE CTL and is not subject to tax liability)—affected by a person’s place of residence).

A resident is a legal entity incorporated under UAE corporate law (including Free Zone Entities). This also includes foreign legal entities that are efficiently managed and controlled in the UAE and any natural person conducting business in the UAE.

On the other hand, a non-resident is a non-resident UAE natural person with a permanent establishment in the UAE. Therefore, they qualify as a non-resident in the UAE when earning income from public sources (subject to 0% withholding tax).

WHO IS EXEMPT FROM CORPORATE TAX?

Government agencies; government-controlled entities; public and private pension funds or social security funds; qualified investment funds; and eligible public interest organizations are exempt.

WHAT ABOUT FREE ZONES?

Free zones will be covered by the UAE corporate tax system and subject to administrative and regulatory obligations. Those eligible in the Free Zone (QFZP) can benefit from a 0% corporate tax rate on “eligible income.” The usual corporate tax rate of 9% will apply to taxable income that is not qualifying.

To qualify as a QFZP, a free zone must:

• Maintain adequate substance in the UAE;
• Deduction of “allowable income” (specified in a Cabinet decision);
• Not opting out of the free zone corporate tax system;
• Comply with transfer pricing rules and documents
• Satisfy other conditions prescribed by the Minister 

CORPORATE TAX UPDATES IN THE UAE: STEPPING INTO THE GLOBAL BUSINESS CREDIBILITY

Many companies in the UAE have yet to pay taxes on their income. However, this is about to change when the UAE Ministry of Finance (MOF) announces the implementation of the Federal Corporate Income Tax (IRS) on January 31, 2022—for financial years starting June 1, 2023 onwards, the IRS plan is intended to apply. Keep reading for detailed information on UAE corporate tax policies.

The move follows the UAE’s intention to comply with international tax rules, following similar moves in neighboring Gulf states while reducing compliance costs for UAE businesses and protecting small businesses and startups. As a result, the United Arab Emirates, home to the most important commercial hub in the world, will continue to have one of the lowest corporate tax rates.

HOW DOES CORPORATE TAX WORK?

With the exception of the natural resource extraction business which will continue to be taxed in accordance with the emirate-specific taxation scheme, UAE corporate income tax will apply to all business and commercial activities. Corporate tax will be on “taxable income,” defined as the net profit on the books of a business after deducting specific amounts (withholding), as defined by the Corporate Tax Act of the UAE.

Business activities, including all types of business activities, carried out in the UAE under a business license or permit, as well as income received from a self-employed license (provided that the income is subject to taxes in excess of AED 375,000), adjusted for the UAE corporate tax bracket.

 It is proposed to use the following corporate income tax rates:

• 0% tax rate on taxable income up to AED 375,000
• Rate of 9% on taxable income over AED 375,000
• Another rate (still to be announced) for large multinationals with consolidated worldwide sales exceeding 750 million euros

 The following exemptions are available under the UAE corporate tax regime:

• In addition, public and private sector workers are exempt from taxes on their wages and income.
• For individuals who engage in real estate or earn personal investment returns in the form of stocks or bonds, dividends will not be taxed as long as they do so as individuals.
• Companies registered in the UAE Free Zone will be subject to the UAE corporate tax framework, but only to the extent that their activities are conducted in the UAE.

• The corporate tax exemption granted to these business entities for operations outside the United Arab Emirates will also apply under the new corporate tax bracket.

 CORPORATE TAX IN DUBAI

Businesses in Dubai must meet certain conditions imposed by the local government in order to be taxed. First, the company must be registered and operating in Dubai through a local company or branch, and the company must also be engaged in business. In addition, corporate tax will be levied on income earned during a tax year. In most cases, the financial year in Dubai corresponds to the calendar year. 

Only certain types of companies are subject to tax:

Dubai-based companies operating in the oil and gas industry, Branches of foreign banks based in Dubai.

While oil and gas companies in Dubai pay a 55% tax on their income, offshore bank branches pay a 20% tax on taxable income. On the other hand, the payment of dividends, royalties, or interest abroad is exempt from withholding tax.

 

IN CONCLUSION

The United Arab Emirates seeks to follow international best practices in developing a leading global business and investment hub by introducing a new corporate tax regime in the country for the first time. Countries while also advancing the government’s strategic goals for the future. The new changes also underscore the country’s commitment to meeting international requirements for tax transparency and combating tax evasion.