UAE Corporate Tax – Guide To The All-New Federal Corporate Tax Introduced

The United Arab Emirates, considered a lucrative business haven for its favourable tax regime, is soon going to witness the introduction of a federal corporate tax. The Ministry of Finance has announced that businesses in UAE will be subjected to the new tax from June 1, 2023.

With an aim to keep the UAE Corporate Tax regime competitive, the statutory tax rate has been fixed at 9% for taxable income above 375,000 dirhams or USD 102,000. It is also expected to benefit small businesses as well as start-ups, who will not fall under the taxable income slab to further improve their business prospects.

Implications of Corporate Tax UAE for Businesses

It was clarified by the ministry that personal income from employment, equity investments, real estate or other income that is not related to a trade or business in UAE will be exempted from the new tax regime.

With the introduction of the first-of-its-kind corporate tax in UAE, it will only be applicable to the adjusted accounting net profits of a business. The new levy, however, will not be applicable on firms involved in the extraction of natural resources. Besides, firms in the UAE will not be charged taxes on capital gains from their qualifying shareholdings. The businesses will also be allowed to credit foreign taxes against the amount of Corporate Tax charged in the UAE.

The Ministry of Finance further clarified that tax incentives currently being offered to free zone businesses would remain unchanged. Although they will be subjected to the new Corporate Tax and have to regularly file returns, tax holidays and benefits will be offered if they abide by standard regulatory requirements. Withholding taxes on domestic as well as cross-border payments will not be imposed under the new regulations. Moreover, foreign investors who do not conduct business in the UAE will not be liable to pay Corporate Tax.

Undersecretary of the Ministry of Finance, UAE, Younis Haji Al Khoori, further reiterated that the new tax regime will empower the company to abide by international standards for tax transparency. It will also help to prevent misuse of unfair tax practices.

Exemptions from UAE Corporate Tax

The following incomes will be exempt from the purview of the UAE Corporate Tax.

• UAE businesses earning dividend or capital gains from qualifying shareholdings
• Intra-group transactions and reorganisations that qualify for certain criteria set under the CT law
• Interest or other income incurred by individuals from savings schemes or bank deposits
• Capital gains, dividends or other income incurred by individuals from shares or securities owned in a personal capacity.
• Real estate investments in individual capacity that do not require a commercial license for carrying out such activity.
• Salaried income or income earned from any other employment

The corporate tax in Dubai is expected to have a significant impact on businesses operating from the seven emirates of the United Arab Emirates. With the application of new laws, mergers, acquisitions as well as business structures and assessments have to be modified. Companies also need to be more watchful and improve their existing structures to avail maximum benefits.

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