In January 2022, the United Arab Emirates (UAE) reported that it would introduce a Corporate Tax UAE system that would cover all companies and also commercial activities in the country, with some exceptions.
In December 2022, Federal Law No. 47 (Corporate Tax UAELaw) was enacted, establishing the legal basis for the introduction and subsequent implementation of federal Corporate Tax UAEin the UAE.
The new regime marks a first step towards alignment with the OECD’s vision for a global minimum tax rate and positions the UAE as an attractive location for companies looking to expand or establish their headquarters.
Here, we answer some important questions about this regulation: when it will go into effect, what the tax rate will be, who will be taxed, and other important details.
When will the UAE Corporate Tax UAEregime come into effect?
This rule is effective for fiscal years beginning on or after June 1, 2023. For example, a company whose financial operations begin on July 1, 2023, and end on June 30, 2024, starts on July 1, 2023, because its fiscal year begins on or after June 1, 2023. Subject to new regulations.
In contrast, companies whose financial year coincides with the calendar year will be subject to the corporate income tax regime from January 1, 2024.
What will the Corporate Tax UAErate be?
The Corporate Tax UAE rate on taxable income is as follows.
- 0% for income up to AED 375,000
- 9% for income above AED 375,000
A different tax rate will soon apply to large multinational companies that meet certain specified criteria. It was introduced by the Organization for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) project. A “large” multinational company is one with consolidated global sales of more than 750 million euros (approximately AED 3.15 billion).
How is taxable income subject to UAE Corporate Tax UAEdetermined??
Taxable income subject to UAE Corporate Tax UAE is detailed in money-related explanations arranged in agreement with universally acknowledged Accounting services benchmarks. However A company’s net Accounting services profit, after adjusting for certain items (unrealized gains and losses) as specified inCorporate Tax UAElaw. (entertainment, interest, donations, and other items specified by law).
Dividends and capital gains generated by UAE companies on qualifying shareholdings are exempt from corporate tax UAE, as are qualifying intra-group transactions and also reorganizations that meet certain conditions.
Is income exempt from UAE corporate tax?
Dividends and capital gains generated by a UAE company from qualifying holdings are exempt from UAE corporate tax. Qualified intra-group transfers are not subject to UAE Corporate Tax UAE as long as the necessary conditions are met.
Who is subject to UAE corporate tax?
UAE Corporate Tax UAE applies to UAE companies incorporated or substantially controlled and controlled in the UAE and other legal entities. These include natural persons (individuals) carrying out business or business activities in the UAE and non-resident legal entities (foreign entities) with a permanent establishment in the UAE, as specified in Cabinet Decisions issued from time to time.
How do you determine whether an individual has a business that will be within the scope of UAE corporate tax?
To determine this, reference will be made to whether they have, or are required to obtain, a business license or permit to carry out commercial, industrial, and/or professional activities in the UAE.
Under the new regime, businesses will be categorized as a “taxable person,” “exempt person,” or “Qualified Free Zone Person” (QFZP) and must assess whether they fall within these categories and register accordingly. Some exempt entities must still apply and receive approval.
What is a “taxable person”?
Taxpayers can be either residents or non-residents:
Residents:
Residents are taxpayers established/established/recognized within the state, including free zone persons or foreign jurisdictions. It is a legal entity effectively managed and controlled by the state. However A natural person is carrying on a business or business activity within the state.
Non-residents:
Non-residents who have a permanent establishment in the state, receive income from state resources, or have connections with the state, as determined by the Cabinet.
Which companies are “exempt” from UAE corporate tax??
Certain exemptions are automatically granted by cabinet decision or application as follows:
Automatically exempt.
- Government agencies and also government-controlled agencies must be designated by cabinet decision (to be announced).
- Exempted by notification to UAE Ministry of Finance – Mining and non-mining companies
- Exempted if specified by cabinet decision (to be announced) – Eligible non-profit organizations.
- Exempted if applied for and also approved by the Federal Tax Service:
- Public or private pension and social security funds
- Qualified Investment Funds
- Subsidiaries of exempt persons wholly owned and controlled by the UAE.
Free Zone companies subject to Corporate Tax UAE?? 4,444 Free Zone (FZ) companies are subject to Corporate Tax UAE but are entitled to Corporate Tax UAE benefits provided they meet all applicable legal requirements. Measures will continue to be taken.
What is the tax rate for free zone companies??
A free zone company that meets the requirements to benefit from the
free zone corporation tax regime – a qualified free zone person (QFZP) – must pay tax at the following rates:
- 0% on qualified income
- 9% on taxable income does not apply to meet the definition of qualified income. What are the qualifying income requirements for a QFZP?? To benefit from the 0% Corporate Tax UAErate.
- Maintains sufficient substance in UAE.
- Earning qualified income (determined by cabinet decision).
- 9% were Not selected for CT.
- Transfer Pricing Regulations (if applicable).
Is foreign Corporate Tax paid on UAE taxable income recognized under the Corporate Tax UAE regime?
Foreign Corporate Tax UAE paid on UAE taxable income will be allowed as a tax deduction for corporate tax. The Corporate Tax UAE regime will allow also the company to use losses incurred from the date the regime comes into effect to offset taxable income in subsequent financial years.
Do transfer pricing regulations apply to UAE companies??
UAE will also have transfer pricing regulations to ensure the transaction price is not affected by the relationship between related parties. Companies will be required to apply the internationally recognized “free direct” principle to transactions and agreements between related parties and related persons.
Where applicable, companies will also be required to file declarations containing information relating to their transactions with related parties and related persons and maintain original records and records local “format and content in accordance with the requirements set out in OECD BEPS Action. When the independent transaction value of transactions with their related party exceeds a certain threshold in the relevant tax period.
What are the sanctions for non-compliance with the Corporate Tax UAEregime??
The UAE Cabinet’s decision on sanctioning late submission of Corporate Tax UAEinformation has not yet been announced. However They are expected to include significant fines and could include the risk of imprisonment for non-compliance.
Preparation and compliance with the new federal Corporate Tax UAE regime will be a challenge for many companies operating in the UAE. June is coming, and you’ll need to prepare for it – although some diet details are yet to be revealed.
At FM, we simplify Corporate Tax UAE for our clients. However our global presence and on-the-ground experts in 120 workplaces over 85 wards around the world, counting Abu Dhabi and Dubai, have the information and involvement to assist businesses of all sizes in exploring and executing the modern corporate charge administration.
Our accounting and assessment specialists within the UAE can help you in the following areas:
- audits to prepare for the start of the Corporate Tax UAE regime
- registering your business on the portal
- Corporate Tax UAE support provides
- calculation coordination of
- return filing to raise awareness and regular updates on new developments.