UAE: New: Corporate Tax in the UAE

The United Arab Emirates, Ministry of Finance (MOF) of United Arab Emirates (U.A.E) announced the introduction of a new 9% Corporate Tax that will be effective for financial years starting on or after 1st June 2023. It will be payable on adjusted profits (above AED 375,000) of all UAE businesses as reported in their financial statements prepared in accordance with IFRS.

The corporate tax is applicable to all businesses registered and operating in the UAE except for banks, insurance companies, and oil, gas, and natural resources companies which are taxed under the current Emirate Level corporate tax.

The levy of tax on corporate profits comes in line with the OECD international deal (Two pillar approach) signed by 137 nations in 2021 to reform its international tax framework and implement a minimum Corporate Tax. This is also to tackle profit shifting and tax challenges arising from the digitalization of economies and taxing the income of multinationals. Large Multinationals with revenues exceeding approx. AED 3.15 billion which meet the “pillar two” criteria shall have a different tax rate.

Federal Tax Authority (FTA) under the Ministry of Finance (MOF), UAE will be responsible to regulate and enforce rules and manage all tax revenues.

Few Salient Features of Corporate Tax:

a. Corporate Tax Registration: Registration for Corporate Tax is applicable to all businesses in the UAE including Free zone-based Businesses.

b. Free Zone Entities: Free zone entities including entities in financial free zones will fall under the purview of corporate tax. Free zones will continue to enjoy all current corporate tax incentives if all regulatory requirements are complied with, and they do not conduct business with Mainland UAE. Further regulatory requirements will be announced soon by the Federal Tax Authority.

c. Exceptions: Capital Gains and Dividends will be exempt from the purview of corporate taxation, thus not affecting holding companies.

d. Foreign Tax Adjustment: Foreign tax paid will be allowed to be credited against the UAE tax payable.

e. Applicability of Transfer Pricing Rules & Intergroup Transactions: Transfer pricing rules and regulations including documentation of master file and local file for a group of Companies will fall in line with the OECD Framework. Qualifying intragroup transactions will be exempt from the UAE Corporate tax law.

f. Other Key Features:

·         Offset of losses will be allowed to businesses.

·         Advance payment of corporate taxes is not required.

·         No deduction of tax at source for all domestic and cross-border payments for interest, royalties, dividends, etc.

·         Corporate Tax returns will be filed once in every financial year.

Despite the introduction of corporate tax in the UAE and new policies to bring tax reforms in the country, the UAE remains in a competitive position to attract businesses and investors due to its low rate of corporate tax as compared to other GCC countries. The tax-related incentives offered within free zones, such as 50-year renewable exemptions, are also becoming increasingly attractive selling points.

In addition, the corporate tax also provides for improved economic movement and is anticipated to produce nearly 300,000 new jobs in the UAE and draw an entirely new skill pool of talent. It will also ensure adherence of financial statements of global businesses to internationally accepted standards.

The new corporate tax ensures the sustainability of the UAE’s development model without disrupting the country’s image as an investment hub.

With new tax regimes emerging in the UAE, investor confidence is at an all-time high. Our expert tax team at Reanda UAE shall endeavor to help businesses navigate these opportunities and provide complete integrated assistance to resolve any tax-related issues.