Corporate Tax

Corporate Tax in UAE-Impact Study

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Impact Suudy Of Corporate Tax In UAE

The Ministry of Finance announced the introduction of federal corporate tax services in Dubai on 31 January 2022 and a new decree regarding the implementation of Corporate Tax on 09 December 2022. The corporate tax in UAE will be applied on business profits effective on or after 1 June 2023. The new CIT will make its impact on the various business entities in UAE.

 

The UAE corporate tax regime has been made to incorporate best practices globally and minimize the compliance burden on businesses. It is the lowest tax rate among the GCC countries, and more details about the corporate tax are yet to be released.  The corporate tax in UAE has been designed according to international accounting standards. The tax will be applied to the profits of commercial or business enterprises and it emphasizes the importance of auditing the financial statement on time from now on. The extraction of natural resources will continue to be subjected to emirate-level corporate taxation. It is the only business activity that has an exception from the UAE corporate tax. Entities operating in the Free zone have some exemptions subject to fulfilment of certain conditions.

Businesses Subject To Corporate Tax In UAE

  1. UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE
  2. Natural persons who conduct a Business or Business Activity in the UAE as specified in a Cabinet Decision to be issued in due course
  3. Non-resident juridical persons that have a Permanent Establishment in the UAE

Also, certain business income is exempt from corporate tax:

  • Individuals are not subject to corporate tax in UAE. Personal income is exempted from corporate tax
  • Corporate tax in UAE does not apply to foreign investors who do not conduct business activities in UAE
  • Free zone businesses that comply with the regulatory requirements will continue to enjoy corporate tax in UAE incentives
  • Capital gains and dividend income received by UAE companies from their qualifying shareholdings
  • Profits from qualifying intragroup transactions and restructurings

Corporate Tax In UAE Rates

All businesses with taxable profit (net) of more than 375,000 AED are subjected to corporate tax. The rate of corporate tax is 9% of the net profit made by the businesses. UAE has intended to support small businesses and start-ups with a ‘0’ % tax if the net profit is up to 375,000 AED.

Corporate Tax In UAE On Free Zone Businesses

Free Zone Persons are subject to a 0% CT rate on their qualifying income. To be considered as a Qualifying Free Zone Person, the Free Zone Person must meet certain requirements. Free zone businesses can also derive a 0% corporate tax rate on income earned from certain regulated financial services directed at foreign markets.

If a Qualifying Free Zone Person fails to meet any such conditions or makes an election to be subject to the regular Corporate Tax regime, they are required to pay the standard rates of Corporate Tax from the beginning of the Tax Period where they failed to meet the specific requirements.

 

CT Rate For A Free Zone Person With A Mainland Branch

A Free Zone Person with a branch in the UAE mainland will be charged tax at the regular corporate tax on its income collected from the mainland. But it can continue to enjoy a 0% corporate tax rate on its free zone income if the mainland and the free zone books of account are separate.

 

CT Rate For Free Zone Persons Trading With The Mainland Without A Branch

Free Zone Persons without a mainland branch may conduct business operations with companies in the mainland UAE. The Free Zone Person can continue to enjoy the 0% corporate tax rate in such cases, provided its income generated from the UAE mainland is limited to ‘passive’ income. Passive income from the UAE mainland can be royalties, dividends, and capital gains earned from owning shares.

 

Transactions With Group Companies

For transactions between Free Zone Persons and their group companies located in the UAE mainland, a 0% tax rate is applied. However, payments made to a Free Zone Person by a mainland group company will not be treated as a deductible expense in corporate tax.

If a Free Zone Person enjoys the 0% corporate tax in respect of mainland sourced income, such income will be considered within the scope of withholding tax; it will be applied at the rate of 0%.

How Can We Help

Businesses require the assistance of an expert tax consultant by the top accounting firm in Dubai to comprehend the concepts of corporate tax in UAE and ensure compliance. Maats, the corporate tax consultancy in Dubai offer specialized tax services for a wide range of business firms in the UAE. From providing on-time updates to guidance to avoid tax risks, we ensure our clients are equipped with the recent amendments in corporate tax policies.