In this article, we will discuss about Corporate Income Tax UAE. We will cover all the major questions related with Corporate Income Tax UAE.

What is Corporate Income Tax UAE?

Corporate Income Tax UAE is a form of direct tax that is levied on the net income of a person (corporations and other businesses, including individuals). UAE Corporate Tax is also known as “Corporate Income Tax UAE” or “Business Profits Tax in UAE”. UAE Corporate Tax is governed by the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses (also known as the “Corporate Tax Law”). This law was issued by the United Arab Emirates (“UAE”) on 9th Dec 2022.

UAE Corporate Tax is intended to help the United Arab Emirates to achieve its strategic objectives as well as to accelerate its development and transformation. UAE Corporate Tax regime adheres to international standards.

Who is required to pay Corporate Income Tax UAE?

UAE Corporate Tax is required to be paid by any taxable person whose taxable profit (net) exceeds 375,000 AED during a tax period.

What is the rate of Corporate Income Tax UAE?

The corporate tax rate in UAE is 0% and 9%. For the taxable income upto 375,000 AED the UAE Corporate Tax rate is 0% and in case of taxable income exceeding 375,000 AED the UAE Corporate Tax rate is 9%.

From which date Corporate Income Tax UAE is Applicable?

UAE Corporate Tax is applicable from Tax period starting on or after 1st June 2023. For example if the tax period of a particular business is starting from 1st June, then UAE Corporate Tax shall be applicable to such business from 1st June 2023. However, in case if the tax period is starting from 1st January, in such case UAE Corporate Tax shall be applicable on such business from 1st January 2024.

What type of incomes are outside the scope of Corporate Income Tax UAE?

Incomes that are outside the scope of UAE Corporate Tax are as follows:

• any income from employment, investments in shares, real estate and other personal income unrelated to a trade or business in the UAE
• Income of foreign investors who do not carry on business in UAE
• Free zone businesses that comply with all regulatory requirements
• Capital gains and dividends received by UAE businesses

What are the Key Features of the Corporate Income Tax UAE?

• UAE Corporate Tax is a Federal Tax and therefore it is applicable across all Emirates of UAE.
• UAE Corporate Tax revenue collected shall be shared between the Federal and the Emirati Government.
• UAE Corporate Tax will be applicable to all UAE businesses and commercial activities, with certain given exceptions as per UAE Corporate Tax Law.
• The Federal Tax Authority will be responsible for the enforcement, collection as well as administration of UAE Corporate Tax.
• The ‘Competent Authority’ for the purposes of bilateral/ multilateral agreements and the international exchange of information for tax purposes, will be the Ministry of Finance.

 

Some Frequently Asked Questions about Corporate Income Tax UAE

1. Introduction to Corporate Income Tax UAE

• A law called Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (referred to as “Corporate Tax Law”) was made by UAE President on October 3, 2022.
• This law sets up rules for a new tax called Federal Corporate Tax (“Corporate Tax”) in the UAE.
• It starts to apply from June 1, 2023, for companies’ financial years beginning on or after this date.
• Corporate Tax is meant to help the UAE grow and develop, with clear and fair tax rules to attract business and investments.
• The UAE’s already strong global position as a business hub will be reinforced by these tax rules.

2. What is Corporate Income Tax UAE?

• Corporate Tax is a type of tax that corporations and businesses pay on their net income.
• In other places, it might be called “Corporate Income Tax” or “Business Profits Tax.”

3. Who is subject to Corporate Income Tax UAE?

• Corporate Tax is for these groups, called “Taxable Persons”:
• Companies and other legal entities based or managed in the UAE.
• People who do business in the UAE, as specified by a government decision.
• Foreign companies with a “Permanent Establishment” in the UAE (explained in Section 8).
• Even companies in UAE Free Zones must follow the Corporate Tax rules, but some might pay 0% tax if they meet certain conditions (in Section 14).
• Non-resident people who don’t have a Permanent Establishment but earn UAE income might face Withholding Tax (usually 0%). This tax is collected when money is paid, and it applies to things like dividends, interest, and royalties.

4. Objectives of Corporate Income Tax UAE

• The UAE wants to achieve several goals through the introduction of Corporate Tax:
• Strengthen its global reputation as a top place for business and investment.
• Speed up its development and progress to meet its important goals.
• Show its commitment to following worldwide tax transparency and preventing unfair tax practices.

5. Scope of Corporate Income Tax UAE

• CT applies to:
• All businesses and people doing business with a commercial license in the UAE.
• Free zone businesses (with exceptions if they follow certain rules).
• Foreign entities and people who do ongoing or regular trade or business in the UAE.
• Banking operations.
• Businesses in real estate management, construction, development, agency, and brokerage.

6. Exemptions from Corporate Income Tax UAE

• Some cases don’t need to pay CT:
• Businesses dealing with natural resources, as they have their own taxes.
• Dividends and capital gains earned by UAE businesses from specific ownerships.
• Certain group transactions and changes, if conditions are met.
• Some personal income like salaries, interest from banks, foreign investor’s returns, personal real estate investments, and personal ownership of shares.

7. Corporate Tax Rate under Corporate Income Tax UAE

• The CT rates from the Ministry of Finance are:
• 0% for income up to AED 375,000.
• 9% for income above AED 375,000.
• Different rate (to be decided) for big multinational companies following OECD guidelines.

8. Administration by Federal Tax Authority (FTA) under Corporate Income Tax UAE

• The FTA is in charge of handling CT:
• Managing, collecting, and making sure taxes are paid.
• The FTA has more resources and information on its website about CT, including registration and filing returns.

9. Free Trade Zones and Corporate Income Tax UAE

• UAE wants to keep its promise to businesses in Free Trade Zones.
• If these businesses only work in Free Trade Zones and not on the mainland, they might not have to pay any tax until a specific time period ends.
• All Free Trade Zones have to submit a yearly tax return.
• Companies that operate in both Free Trade Zones and the mainland, or have a dual license, should think about how this affects their operations.

10. Transfer Pricing Rules and Corporate Income Tax UAE

• The rules from the OECD about how companies should set prices for transactions between each other will apply in the UAE.
• All companies have to follow these rules and provide the needed documents.
• These rules will now be a must, even for transactions within the country.
• Before, companies might not have paid a lot of attention to how they pay each other for sales and services within the same group. Now, they have to do this fairly and show proof.
• Companies should look at their current agreements and see how this affects deals within the UAE and with other countries.

11. Losses and Corporate Income Tax UAE

If a company has lost money in the past and paid less tax because of it, it can use those losses to lower its tax on profits in the future.

12. Withholding Tax Rate under Corporate Income Tax UAE

• For some kinds of income from the UAE, paid to people outside the country, there might be no tax withheld, meaning no tax needs to be paid at the source.
• UAE businesses and foreign recipients don’t have to register or file for withholding tax in these cases.
• Transactions within UAE residents are not affected by withholding tax.

13. Qualifying Free Zone Person and 0% Corporate Tax Rate under Corporate Income Tax UAE

• A Free Zone Person can have a 0% tax rate on their “Qualifying Income” if they are a Qualifying Free Zone Person.
• To be considered Qualifying Free Zone Person, they need to:
• Have enough presence in the UAE.
• Earn “Qualifying Income.”
• Not choose to pay regular tax rates.
• Follow the rules about pricing transactions fairly.
• There might be extra rules set by the Minister.

14. Forming Tax Groups under Corporate Income Tax UAE

• When certain conditions are met, two or more Taxable Persons can become a “Tax Group” and be treated as one for tax purposes.
• For this, the parent company and its subsidiaries must:
• Be resident legal entities.
• Have the same financial year and accounting standards.
• The parent company must own at least 95% of shares, voting rights, and profits of the subsidiary.
• The Tax Group can’t include an Exempt Person or Qualifying Free Zone Person.

15. Calculating Taxable Income for a Tax Group under Corporate Income Tax UAE

• The parent company of a Tax Group has to create consolidated financial accounts for each group member.
• Transactions between the parent company and group members, and between group members, don’t count for calculating Taxable Income.

16. Registering, Filing, and Paying Corporate Income Tax UAE

• All Taxable Persons (including Free Zone Persons) have to register for Corporate Tax and get a Tax Registration Number.
• Some Exempt Persons might also be asked to register.
• Taxable Persons have to submit a Corporate Tax return within 9 months after the period ends.
• The same deadline applies for paying the tax due based on the filed return.
• Here are examples of deadlines for Taxable Persons with financial years ending on May 31 or December 31.

17. How Taxable Persons Are Subject to Corporate Income Tax UAE?

• Like many countries, Corporate Tax in the UAE is based on both where a person resides and where their income comes from.
• The basis depends on whether the person is a “Resident Person” or a “Non-Resident Person.”

18. Who is a Resident Person under Corporate Income Tax UAE?

• Companies and other legal entities based in the UAE are automatically Resident Persons.
• This includes entities under mainland laws or Free Zone regulations, and those formed by special decrees.
• Foreign companies might also be Residents if they are effectively managed and controlled in the UAE.
• Natural persons (individuals) are Residents for tax if they earn income from a Business or Business Activity in the UAE.

19. Who is a Non-Resident Person as per Corporate Income Tax UAE?

• Non-Resident Persons are not based in the UAE.
• They might still be taxed if they have a Permanent Establishment in the UAE or if they earn certain UAE sourced income.

20. What is considered as a Permanent Establishment as per Corporate Income Tax UAE?

• A concept used in many countries’ tax laws to decide if a foreign person has a significant enough presence in the UAE for their profits to be taxed.
• The UAE’s Permanent Establishment rules are based on international principles and consider factors like business activities.
• The definition follows guidelines from the OECD Model Tax Convention and the UAE’s international agreements.

 

 

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