When will UAE implement Corporate Tax?
The legislation of Corporate Tax in UAE has not been passed and is still in finalization stage and therefore, yet to be published. The relevant law will come into force on or post financial year June 2023 which gives sufficient time for the FTA and the business that will get covered to prepare themselves for smooth rolling out of the new system. On 31 January 2022, the Ministry of Finance of the United Arab Emirates stated that “Introducing a CT regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices”. To provide greater transparency and comply with regulations in an effective manner, the UAE has proposed and subsequently decided to introduce Corporate tax with lowest tax rates at the global level, next only to Bahrain coming into force from the financial year June 2023 or after that.
One of the factors considered while deciding on the proposal is to increase the status of UAE as a major commercial and investment centre in global eyes. However, it is also seen as a strategic goal to minimize the dependency on oil as a major revenue source.
The proposal to implement Corporate tax in UAE is to fall in line with competitive tax policies and regulations all over the world to level itself up to transparency and dynamic international practices. Therefore, the introduction of Corporate Tax in UAE efforts to strike a balance between being an attractive destination for global investors while providing them lesser tax burden. The minimum tax rate is zero and the maximum tax rate is 9% based on whether the total taxable income is lesser than or greater than AED 375,000 respectively. However, multinational corporations subject to OECD Base Erosion and Profit-Sharing laws Pillar 2 of the BEPS 2.0 framework will be entitled to varying rates. The taxable income will be calculated after making specified adjustments or exceptions to accounting net profit and tax losses, if any can be carried forward to subsequent fiscal years and set off against the taxable income for the respective year. Further, all the businesses will be required to file an annual return electronically. This comes as a major change since most entities in UAE do not have to file corporate tax returns, regardless of the registration status of their businesses.
The Ministry of Finance of the United Arab Emirates has decided that the Corporate Tax in UAE to be extended to all sorts of business activities carried on by any legal body. Hence, businesses operating in free zone will also be covered under this. However, if they do not conduct business with mainland UAE and comply with the specific requirements, they will enjoy exemption. The Federal Tax Authority (FTA) will be the responsible and regulatory authority for the enforcement, collection of tax and administration of the Corporate Tax in UAE.