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‘Corporate Tax’ can better be understood as a form
of direct tax levied on the net income or profit of a corporation
or business entity. It is also commonly referred to as
‘business profit tax’ or ‘corporate income
tax’. The United Arab Emirates has now introduced, for the
first time, federal corporate tax in the country. Announcing the
new tax regime, the ministry of finance (MOF) has released a set of
key pointers that serve as guidelines for the applicability of the
corporate tax, which would be enforced from 1 June 2023 onwards
(‘UAE Corporate Tax’). The corporate tax law in itself
is awaited to be issued.
The UAE corporate tax will apply to all business and commercial
activities in the UAE, except for the commercial activity of
extraction of natural resources, which would still be taxed as per
emirate specific taxation. The Federal Tax Authority (FTA)
established in 2016, shall be the government entity responsible for
the administration, collection and enforcement of the corporate tax
regime in the UAE. Further, the Ministry of Finance will remain the
competent authority for purposes of international tax agreements,
treaties etc., including the exchange of information for tax
purposes.
Taxable Threshold:
The UAE corporate tax will apply to a certain portion of the
total income generated, which is referred to as the ‘taxable
income’. The taxable income could be determined by taking
into account the net profit of a given business entity after having
adjusted certain deductibles. More information is awaited on the
exact criteria applicable.
The corporate tax will be applicable on a taxable income above
Aed 375,000.
Thus, for a taxable income up to Aed 375,000, applicable
corporate tax will be 0%.
The corporate tax rates applicable for income above AED 375,000
include:
- 9% for taxable income above Aed 375,000; and
-
a different tax rate for large multinational companies that meet
certain specific criteria.
As discussed above, the UAE corporate tax shall be made
applicable to all business and commercial activities conducted in
the UAE. The only exemptions that have been clarified at present by
the MOF concern the commercial activity of extraction of natural
resources as there is a separate emirate level taxation applicable
for the said activity. In short, all nature of business activities
carried out in the UAE, under a trade license or permit, including
income earned under freelancer permits (provided taxable income
exceeds Aed 375,000), shall be included within the scope of
applicability of the UAE corporate tax regime. Thus, if you are a
freelancer, who is licensed in the UAE and earning a taxable income
in excess of Aed 375,000, you are subject to the UAE corporate law
and required to pay the applicable corporate tax.
Other exemptions to the UAE Corporate Law:
-
Individual salaries and employment income are exempted from
being taxed for both public and private sector employees. -
Investments made by individuals in real estate or capital gains
received from the personal investment made through shares or
debentures, in the form of dividends, investment returns will not
be taxed as long as it is in their personal capacity. -
Businesses registered in the free zones in the UAE will be
included under the UAE corporate tax regime, however, only to the
extent that they conduct their business within the UAE. For
business activities outside the UAE, the corporate tax exemption
granted to such business entities will continue to be honored under
the new corporate tax regime as well.
The UAE corporate tax will apply from the financial year
starting from 1 July 2023 and ending on 30 June 2024. However, for
a business that as its financial year starting from 1 January 2023
and ending on 31 December 2023, will become subject to the UAE
corporate tax starting from 1 January 2024. This requires
businesses and individuals to start planning ahead, whether it
concerns the implementation of the measures, imparting training for
their staff or ensuring a compliance policy. Of course, the UAE
corporate law is still awaited to be published, and a thorough
review of the same to understand the threshold parameters and the
applicable tax rate is a given mandatory step ahead.
Introduction of the new corporate law can have a multifold
effect on foreign direct investment following into the UAE, wherein
the investors are particular about the profits, for existing
entities the concerns could be about the applicability of the
pretax and post-tax returns and double tax treaties amongst others.
Having introduced the new corporate tax regime for the first time
in the country, the UAE now aims to implement international best
practices in creating a leading global center for investment and
businesses while accelerating the country’s strategic
objectives for further advancement. The new changes also reaffirm
the country’s commitment to meeting international standards
for tax transparency and in curbing negative tax practices.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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