Tax Is Coming..Is Your Company Ready ?, The New Corporate Tax Regime in the UAE.

It is known to everyone that the UAE is one of the few geographical and economic regions in the modern world that used to apply a corporate tax ( CT ) rate of 0%, But where the UAE government looking to increase its non-oil revenues, For this purpose it issued the Federal Decree Law No. (47). ) of 2022 on corporate and business tax in late 2022, Based on that law, A business will be subject to corporate tax either on July 1, 2023, or on January 1, 2024, Depending on its first fiscal year …So what are the details of the UAE corporate tax ( CT ) ? Who will have to pay the tax?, How will it be calculated?, And what are the probable effects of introducing it on businesses?… Continue reading this article for everything you need to know about the upcoming corporate tax in the UAE from January 2023.

In Brief  

First of all, corporate tax is a form of direct tax imposed on net income or business profit. Corporate tax is referred to as “corporate income tax” or “business profit tax.”. And according to the UAE Ministry of Finance (MOF), all business entities operating within The United Arab Emirates for the new tax regime from January 1, 2023 onwards, and the corporate and business income tax rate will be 9%, and this is the lowest corporate income tax rate in the GCC region. ( Saudi Arabia 20%- Oman 15% - Qatar 10% - Kuwait 15%)

Features of Corporate Tax Regime

1) Effective Day

a- Any company that adopts a fiscal year starting on 1 June 2023 and ending 31 May 2024  will be subject to CT starting 1 June 2023. The first tax return filing is likely to be due towards the end of 2024.

b- Any company that adopts a calendar year starting 1 January 2023 and ending 31 December 2023 will  be subject to CT starting 1 January 2024 and filing is likely to be due towards mid-2025.

2) Scope Of The CT

a- All businesses and individuals conducting business activities under a commercial licence in the UAE.

b- free zone businesses (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 set up in the UAE’s mainland.)

c- Foreign entities and individuals only if they conduct a trade or business in the UAE in an ongoing or regular manner.

d- Banking operations.

e- Businesses engaged in real estate management, construction, development, agency and brokerage activities.

3) CT Exemptions

a- Any governmental or public entities that include both federal and regional offices, departments, divisions, and all other public institutions.

b- Businesses that deal with the extraction or mining of natural resources in the UAE. As those businesses are already subject to Emirate-level taxation, they won’t have to file the corporate tax report separately.

c- Any organizations that work for charitable and social causes. However, such businesses must register as social or charity organizations with the MOF. Those eligible must first apply to relevant authorities to obtain a formal clearance before applying for MOF registration.

d- Any public or regulated private entities that deal with the social benefit funds like pension or retirement planning.

e- Real estate and other regulated investment funds. Similar to charitable organizations, such funds must apply to MOF and the Federal Tax Authority (FTA) to obtain a formal exemption approval.

f- Any UAE companies fully owned by the UAE government and listed with a ministry-level decision to receive the tax exemption.

Additionally,

a- An individual earnings salary and other employment income, whether received from the public or the private sector.

b- Interest and other income earned by an individual from bank deposits or saving schemes.

c- A foreign investor’s income earned from dividends, capital gains, interest, royalties and other investment returns.

d- Investment in real estate by individuals in their personal capacity.

e- Dividends, capital gains and other income earned by individuals from owning shares or other securities in their personal capacity.

4) CT Rate

MOF, the regulatory body for the UAE corporate tax, has devised a taxation policy with three taxation tiers, which are:

l  Businesses with net yearly profit up to AED 375,000: Subject to a 0% tax rate.

l  Businesses with net yearly profit above AED 375,000: Subject to a 9% tax rate.

l  Large multinational companies: Subject to a separate taxation policy  that meet specific criteria set with reference to "'Pillar two' of the OECD Base Erosion and Profit Shifting Project." Companies with total global revenue over EUR 750 million (equivalent to AED 3.15 billion) will belong to this category. and it will pay a 15% tax , this is in line with the Global Minimum Corporate Tax Rate agreement.

5) Tax Deduction for Companies with Foreign Branches

The UAE government will also allow the foreign company branches located in the UAE to choose one of the following options:

a- If companies have a branch of office in another country, they can claim a foreign tax credit for the amount of tax paid in that country.

b- Alternatively, the companies may apply for an exemption based on the profit made by their foreign branches outside the UAE.

                                                                      Published By

YINGK & SHAYAN LEGAL CONSLUTING TEAM

                                                                           January 26, 2023