INTRODUCTION OF CORPORATE TAX IN UAE

December 28, 2022Dated:  | |

WHAT IS CORPORATE TAX?

It is a type of direct tax levied on the net income/profit of businesses or corporations. It is otherwise referred to as Business Profit Tax in many other countries.

CORPORATE TAX IN UAE

WHEN IS IT EFFECTIVE?

Corporate Tax will be applicable in UAE from 01st June 2023 for the companies whose financial period starts on or after 01 June 2023. For example, if a business has financial period starting from 01 June 2023 and ending in 31 May 2024, such businesses will be subject to corporate tax from 01 June 2023. On the other hand, if a business has financial period starting from 01 January 2024 and ending 31 December 2024, such businesses will be subject to corporate tax from 01 January 2024.

WHO WILL BE SUBJECTED?

Corporates – Corporate Tax in UAE will be applicable to Juridical Persons who are incorporated in the UAE and Juridical Persons who are effectively managed in the UAE and to Foreign Juridical Person who have permanent establishment in the UAE.

Individual – If an individual is directly or indirectly conducts business/business activities through an unincorporated partnership or sole establishment in UAE, they will be under the scope of UAE Corporate Tax.

Irrespective of nationality or residence Corporates and individual will be liable to follow corporate tax rules and compliances in the UAE.

WHAT ARE THE RATES?

Individuals and juridical persons:

  • 0% on Taxable Income not exceeding amount specified in cabinet Decision (Not confirmed yet)
  • 9% on Taxable Income that exceeds amount specified in the cabinet decision

Qualifying Free zone Persons:

  • 0% on Qualifying Income of the business
  • 9% on the income that doesn’t meet the criteria for Qualifying Income

WHO ARE EXEMPT?

  1. Qualifying Public Benefit Entities
  2. Extractive and Non Extractive Natural Resources Business
  3. Wholly Government-owned/controlled Entities
  4. Qualifying Investment Fund

WHAT ARE THE INCOME EXEMPT?

  1. Dividends and other profit distributions earned from a UAE formed company/ resident legal persons
  2. Dividends and other profit distribution earned from a foreign formed company/ juridical person
  3. Other income from participating interest from within UAE and outside UAE
  4. Income earned from foreign Permanent Establishment (Subject to conditions)
  5. Income derived from operating aircraft or ships in international transportation by non-residents.

CAN TAX GROUPING OPTED?

If a UAE formed company has at least 95% of the shares capital and voting right of each companies which are proposed to be formed as a tax group, then these companies can form a tax group and be treated as single taxable person for the purpose of the UAE Corporate Tax.

As UAE Corporate Tax is the first type of direct tax introduced in the UAE, a lot of tax planning, documentations, rules and regulations has to be followed to ensure compliance. Get in touch with our team of Tax and Accounting professionals to get more information about Corporate Tax.

    Know Your Corporate Tax