Federal Corporation Tax on business profits will be implemented in the UAE commencing with fiscal years beginning on or after 1 June 2023. The UAE Corporation Tax regime has been created to take into account best practices from around the world and lessen the burden of compliance on UAE firms.
The UAE Corporation Tax framework would facilitate headquarters and investment activities and verify the free flow of financing, commerce, capital, and services given the position of the UAE as a worldwide financial center and an international commercial hub.
The Honorable According to Younis Haji Al Khoori, Undersecretary of the Ministry of Finance (MoF), “The UAE plays a crucial role in assisting businesses to thrive, both domestically and internationally, since it is a leading jurisdiction for innovation and investment. The UAE will maintain its position as a premier global hub for business and investment thanks to the assurance of a competitive and best-in-class corporate tax environment and the UAE’s broad network of double tax treaties. The UAE’s strategic goals will be furthered by the implementation of a corporate tax framework, which will also encourage enterprises to establish and grow operations there.
The UAE Corporation Tax regime will be between the most competitive in the world with a basic statutory tax rate of 9% and a 0% corporate tax rate for taxable profits up to AED 375,000 to help small firms and startups.
The UAE has officially supported the worldwide minimum effective tax rate as recommended under “Pillar Two” of the OECD Base Erosion and Profit Shifting program, according to a statement from the Ministry of Finance on July 26, 2021. By applying a separate Corporate Tax rate to significant multinationals that meet specified requirements set on the aforementioned effort, the UAE would be able to implement its support based on the introduction of a UAE Corporate Tax regime.
Businesses will have plenty of time to prepare for the implementation of Corporate Tax, and additional details on the UAE Corporate Tax system will be made available by the middle of 2022 to aid in preparation and compliance.
Corporate Tax FAQ
1.Why is the UAE introducing CT?
A competitive CT regime based on global best practices will strengthen the UAE’s position as a top business and investment hub and speed up the country’s growth and transformation to meet its strategic goals.
The UAE’s commitment to upholding international norms for tax transparency and avoiding unfair tax practices is reiterated by the introduction of a CT framework.
2. Is the UAE the first country to introduce CT?
Most nations in the globe, including most of the GCC Member States, have an extensive CT regime.
3. When will the UAE CT regime become effective?
For fiscal years beginning on or after June 1, 2023, the UAE CT regime will go into force.
• Beginning on July 1, 2023, businesses with fiscal years that begin on July 1 and end on June 30, 2024, will be subject to UAE CT (which is the beginning of the first financial year that starts on or after 1 June 2023).
• Starting on January 1, 2024, businesses with fiscal years that start on January 1, 2023, and end on December 31, 2023, will be subject to UAE CT (which is the beginning of the first financial year that starts on or after 1 June 2023).
4. Will UAE CT apply to businesses in each Emirate?
Since the UAE CT is a federal tax, it will be imposed on all Emirates.
5. What will be the role of the Ministry of Finance?
For the objectives of bilateral and multilateral agreements as well as the international exchange of information for tax purposes, the Ministry of Finance will continue to be the “competent authority.”
6. What will be the role of the Federal Tax Authority?
UAE CT will be administered, collected from, and enforced by the Federal Tax Authority.
7. Who will be subject to UAE CT?
Except for resource extraction, which will continue to be subject to Emirate-level corporate taxation, UAE CT will apply to all businesses and commercial activities in the UAE.
8. How do you determine whether a legal entity has a “business” that will be within the scope of UAE CT?
All actions made by a legal entity shall be considered “business activities” and fall under the purview of UAE CT.
9. How do you determine whether an individual has a “business” that will be within the scope of UAE CT?
In most cases, this would be determined by looking at whether the person in question already has (or is required to receive) a business license or permit to engage in the relevant commercial, industrial, and/or professional activity in the UAE.
10. How do you determine the business profit/income that will be subject to UAE CT?
The accounting net profit of a company, after making adjustments for particular elements that will be established under UAE CT law, will be the corporate income tax.
The amount shown in the financial accounts created using generally accepted accounting principles is the amount a company reports as its accounting net profit.
11. What will the UAE CT rates be?
As for the CT rates:
• 0% of taxable income for the first AED 375,000;
• 9% of taxable income exceeding AED 375,000;
• A special tax rate for large multinational corporations that satisfy the requirements for “Pillar Two” of the OECD Base Erosion and Profit Shifting initiative.
12. What is meant by “large” multinationals?
A multinational corporation has a foreign subsidiary, branch, or another form of registration or presence that conducts business both in its home country and in other countries. A company would not qualify as a multinational corporation if it only received money from sources other than its home country and had no overseas presence or registration.
A multinational corporation is considered to be “big” in the context of the worldwide minimum effective corporate tax rate as recommended under “Pillar Two” of the OECD Base Erosion and Profit Shifting program if its consolidated global revenues exceed EUR 750 million (c. AED 3.15 bn).
13. Will an individual’s salary income be subject to UAE CT?
An individual’s salary and other employment income are exempt from UAE CT (whether received from the public or private sector).
14. Will income earned by a foreign investor be subject to UAE CT?
UAE CT will typically not be assessed on a foreign investor’s royalties, interest, capital gains, dividends, and other investment returns.
15. Will a free zone business be subject to UAE CT?
Enterprises in free zones will be subject to UAE CT, although the UAE CT regime will continue to maintain the incentives for CT that are now provided to free zone businesses that adhere to all legal requirements and don’t do business with mainland UAE.
16. Will a free zone business be required to register and file a CT return?
An organization founded in a free zone must register and submit a CT return.
In due course, more information on the free zone businesses’ compliance requirements will be made available.
17. Will the UAE CT treatment be different for a free zone business established in a financially free zone?
Every free zone will be subject to the same UAE CT treatment for businesses.
18. Will a group of UAE companies be able to form a “fiscal unity” for UAE CT purposes?
If certain requirements are completed, a UAE group of firms may choose to establish a tax group and be considered as a single taxable person.
A UAE tax group will only need to submit one tax return for the group as a whole.
19. What is withholding tax?
A tax called withholding is gathered at the point of production by the payer on behalf of the income recipient.
Many tax systems have withholding taxes, which are often applied to royalties, interest, dividends, and other comparable payments.
20. What is the withholding tax rate under the UAE CT regime?
Under the UAE CT scheme, there will be no UAE withholding tax on internal or international payments of any kind.
21. Will foreign CT paid on UAE taxable income be recognized under the UAE CT regime?
Foreign CT paid on taxable income in the UAE may be applied as a tax credit toward the UAE CT obligation.
Don’t hesitate to get in touch with us if you need any assistance or direction on the possible effects of CIT on your business and operations in the UAE. Once the CIT Act is fully implemented, BACT’s corporate team will be available to help with any necessary restructurings, pre-deal planning, and valuation considerations, as well as with drafting strong tax reparations and agreements in UAE transaction documents.
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