- UAE corporate taxes – scope and timeframe
- Income exempt from UAE corporate tax
- UAE corporate income tax for foreigners
- UAE corporate taxation in free zones
- Taxation of various industries
- Losses in the context of UAE corporate taxation
- Tax group
- UAE withholding tax
- UAE corporate tax incentives
- Transfer pricing in the UAE
- UAE corporate income tax administration
Recently, the United Arab Emirates authorities announced the introduction of a corporate tax. In this regard, we answer some frequently asked questions about UAE corporate tax.
What is corporate tax?
Corporate tax is a form of direct tax levied on the net income or profits of corporations and other enterprises.
Corporate tax is sometimes also referred to as corporate income tax or business income tax in other jurisdictions.
Why is the UAE implementing a corporate tax?
A competitive corporate tax regime based on best international practices will strengthen the UAE’s position as a leading global hub for business and investment. It will also accelerate the country’s development and transformation to achieve its strategic goals.
The introduction of the UAE corporate tax regime confirms the county’s commitment to complying with international standards to ensure tax transparency and prevent harmful tax practices.
Is the UAE the first country to implement a corporate tax?
Most countries in the world have a comprehensive corporate tax regime, including most of the GCC (Gulf Cooperation Council) member states.
When will the corporate tax regime in the United Arab Emirates come into force?
The UAE corporate tax regime comes into effect for fiscal years beginning on or after June 1, 2023.
For example, a business whose fiscal year begins on July 1, 2023, and ends on June 30, 2024, is subject to UAE corporate tax from July 1, 2023 (because the first fiscal year of this business began on or after June 1, 2023). Companies whose fiscal year starts on January 1, 2023, and ends on December 31, 2023, are subject to corporate taxes in UAE from January 1, 2024.
Will UAE corporate income tax apply to companies in each emirate?
UAE corporate tax is a federal tax and will therefore apply in all emirates.
What will be the role of the UAE Federal Tax Authority?
The Federal Tax Authority will be responsible for administrating and collecting UAE corporate tax.
What will be the role of the UAE Ministry of Finance?
The Ministry of Finance will remain the competent authority for the purposes of bilateral or multilateral agreements and international tax information exchange.
UAE corporate taxes – scope and timeframe
Who will be subject to UAE corporate income tax?
New UAE corporate tax will apply to all businesses and commercial activities in the UAE, except natural resource extraction, which will continue to be subject to corporate taxation at each individual emirate level.
How will authorities determine if a legal entity’s business is subject to corporate taxes in UAE?
All activities carried out by a legal entity will be considered business activities and, therefore, subject to UAE corporate income tax.
How will authorities determine if an individual’s business is subject to corporate taxes in UAE?
Typically, this will be done with reference to an individual holding (or required to obtain) a commercial license or permit to carry out the relevant commercial, industrial or professional activities in the United Arab Emirates.
How will authorities determine the business profit/income subject to UAE corporate tax?
Taxable income will be the accounting net income of the business after adjustments have been made for specific items that must be reported under UAE corporate tax law.
The accounting net profit of an enterprise is the amount shown in the financial statements prepared following internationally accepted accounting standards.
What will be the UAE corporate tax rates?
The UAE corporate tax rates:
- 0% on taxable income up to AED 375,000 (USD 102,180)
- 9% on taxable income over AED 375,000 (USD 102,180)
- other tax rates for large multinational corporations that meet certain criteria established under the Pillar Two of the OECD Base Erosion and Profit Shifting (BEPS) project.
What are large multinational corporations?
A multinational corporation is a corporation that operates in its own country, as well as in other countries, using a foreign subsidiary, branch, or other forms of presence/registration.
Generating income outside the company’s country of origin without a foreign presence or registration will not make a business a multinational corporation.
In the context of the global minimum effective tax rate proposed under the Pillar Two of the OECD Base Erosion and Profit Shifting (BEPS) project, large refers to a multinational corporation that has consolidated global revenues over EUR 750 million (AED 3.15 billion).
Will the income from an individual’s wages be subject to corporate taxes in UAE?
UAE corporate tax will not apply to an individual’s wages and other employment income (whether from the public or private sector).
Will an individual holding a commercial business license in the UAE be subject to corporation taxation?
Business income derived under a commercial license will be subject to UAE corporate income tax.
Will an individual investing in real estate in the UAE be subject to corporate tax?
Investments in real estate by individuals made personally on their behalf will not be subject to UAE corporate tax, provided that the individual is not required to obtain a commercial license or permit to carry out such activities.
Will an individual be subject to UAE corporate tax on investment returns?
Individuals will not be subject to UAE corporate tax on dividends, capital gains, and other income derived from the ownership of shares or other securities if they receive these incomes personally on their behalf.
Will freelance income be subject to corporate taxes in UAE?
UAE corporate tax will generally apply to income from activities carried out under a freelancer’s license/permit. However, no corporate tax will apply if the freelancer’s annual net income does not exceed AED 375,000 (USD 102,180).
Will income received by an individual from bank deposits be subject to corporate taxation in the United Arab Emirates?
Interest and other income received by an individual from bank deposits or savings programs will not be subject to UAE corporate income tax.
If a business generated AED 400,000 taxable income in a fiscal year, what would be the amount of UAE corporate tax?
The corporate tax liability will be calculated as follows:
- Taxable income between AED 0 and AED 375,000 (USD 102,180) at 0% = AED 0.
- The part of taxable income exceeding AED 375,000 (i.e. AED 400,000 – AED 375,000 = AED 25,000) at a rate of 9% = AED 2,250.
- The UAE corporate tax liability for the year will be AED 0 + AED 2,250 = AED 2,250 (USD 613).
The total corporate payable tax will be reduced by the amount of foreign taxes levied on qualifying income (see below in the UAE corporate tax incentives section).
Will anyone be exempt from UAE corporate income tax?
Natural resource extraction enterprises will continue to be subject to the corporate taxation of each individual Emirate and will not be subject to new UAE federal corporate tax.
Income exempt from UAE corporate tax
Will any income be exempt from corporate taxes in UAE?
Dividends and capital gains received by a company from its qualifying shareholdings will be exempt from UAE corporate taxation.
What is a qualifying shareholding?
A qualifying shareholding refers to an ownership share in a UAE or foreign company that meets certain conditions specified in the UAE corporate tax law.
Will intra-group transactions be exempt from UAE corporate taxation?
Qualifying intra-group transactions and reorganizations will not be subject to UAE corporate tax, provided meeting the necessary conditions.
UAE corporate income tax for foreigners
Will a foreign company or individual be subject to UAE corporate taxation?
Foreign entities and individuals will be subject to UAE corporate tax only if they trade or do other business in the country on a regular basis.
Will income received by a foreign investor be subject to corporate taxes in UAE?
UAE corporate taxation will generally not apply to a foreign investor’s income from dividends, capital gains, interest, royalties, and other investment income.
UAE corporate taxation in free zones
Will free zone companies be subject to UAE corporate taxation?
Free zone companies will be subject to UAE corporate income tax, but the corporate tax regime will continue to provide incentives currently offered to such companies that meet all regulatory requirements and do not conduct business with the UAE mainland.
Will a free zone business be required to register and file a corporate tax return?
A company established in a free zone will be required to register and file a corporate tax return.
Will the UAE corporate tax regime be different for free zone companies established in a financial free zone?
The UAE corporate tax regime that will apply to companies in free zones will be the same in all free zones.
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Taxation of various industries
Will the oil and gas sector and other extractive industries be subject to UAE corporate tax?
Enterprises engaged in natural resources extraction will continue to be subject to the corporate taxation of each individual emirate and will not be subject to UAE federal corporate taxation.
Will the banking sector be subject to UAE corporate income tax?
Banking transactions will be subject to United Arab Emirates corporate taxation.
Will the real estate sector be subject to the UAE corporate tax regime?
Businesses engaged in property management, construction, development, agency and brokerage activities will be subject to UAE corporate taxation.
Losses in the context of UAE corporate taxation
Will the UAE corporate tax regime allow the prior year’s losses to reduce future taxable income?
UAE corporate tax law will allow businesses to use incurred losses (starting from the effective date of UAE corporate tax) to adjust taxable income in subsequent fiscal periods.
A loss for corporate tax purposes (tax loss) occurs when the total amount of deductions a business can claim exceeds the total income for the relevant fiscal period.
Will UAE corporate tax law allow to carry forward excess tax losses and use them in the future?
Excess tax losses can be carried forward to future years and used to adjust taxable income under meeting certain conditions.
Will a group of companies be able to use the tax losses of one company to adjust the taxable income of another company?
The tax losses of one group’s company can be used to adjust the taxable income of another group’s company under meeting certain conditions.
Tax group
Will a UAE group of companies be able to form a fiscal unity for the purposes of UAE corporate tax accounting?
A UAE group of companies may choose to form a tax group and be treated as a single taxable entity under meeting certain conditions.
A UAE tax group will have to file a single tax return for all its companies.
UAE withholding tax
What is withholding tax?
Withholding tax is a tax levied at the income source on behalf of the income recipient. Withholding taxes exist in many tax systems and are commonly applied to dividends, interest, royalties, and similar payments.
What is the withholding tax rate under UAE corporate taxation?
UAE withholding tax will not apply to domestic and cross-border payments of any nature under the UAE corporate tax regime.
UAE corporate tax incentives
Will foreign corporate tax paid on UAE taxable income be recognized under the UAE corporate tax regime?
Foreign corporate tax paid on UAE taxable income can be credited as a tax deduction against UAE corporate tax liabilities.
Transfer pricing in the UAE
What are the transfer pricing rules in the UAE?
The transfer pricing rules aim to ensure that transactions between related parties are carried out on an arm’s length basis (i.e., as if the transaction were between unrelated parties).
Will transfer pricing rules apply to UAE companies?
UAE companies will be required to comply with transfer pricing rules and documentation requirements set under the OECD Transfer Pricing Guidelines.
UAE corporate income tax administration
Will companies be required to register for UAE corporate tax purposes?
Yes, UAE corporate tax law has such requirements.
How often will companies need to file a corporate tax return in the United Arab Emirates?
Only one corporate tax return will need to be filed per fiscal period. No prior corporate tax returns are required. The fiscal period is usually one year.
Is it mandatory to file UAE corporate tax returns in electronic form?
Yes, the corporate tax return will need to be filed electronically.
Will companies be required to pay UAE corporate tax in advance?
UAE companies will not be required to make upfront UAE corporate tax payments.
Are there any consequences for non-compliance with the UAE corporate tax regime?
Similar to other taxes in the UAE (such as VAT), companies will be subject to penalties for non-compliance with the corporate tax regime.
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Who will have to pay corporate taxes in UAE?
All companies engaged in commercial activities are subject to UAE corporate tax, except for companies involved in extracting natural resources. Such companies will be subject to corporate taxation at the level of each individual emirate.
Which individuals will be subject to UAE corporation taxation?
As a general rule, UAE corporate tax will apply to individuals who hold (or are required to hold) a commercial license or permit to carry out relevant commercial, industrial or professional activities in the Emirates.
What are UAE corporate income tax rates?
0% rate apply on taxable income up to AED 375,000 (USD 102,180). 9% rate – on taxable income over AED 375,000 (USD 102,180). Other tax rates will apply to large multinational corporations that meet certain criteria.
