The UAE Ministry of Finance has announced the introduction of the Corporate Tax (CT) regime in UAE.
Key features of the proposed CT are summarized below:
Scope and Applicability
- UAE CT will be effective on or after June 1, 2023. For Example:
- A business that follows financial year of July to June, will be subject to UAE CT from July 1, 2023 (which is the beginning of the first financial year that starts on or after June 1, 2023)
- A business that follows calendar year as its financial year, will become subject to UAE CT from January 1, 2024 (which is the beginning of the first financial year that starts on or after June 1, 2023)
- The UAE CT is a federal tax and will therefore apply across all Emirates.
- UAE CT will apply to all UAE businesses and commercial activities, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation.
Applicability to businesses in Free Zones
- Free Zone businesses must register and file the CT return.
- Tax incentives/exemptions for free zone businesses will continue to be available, subject to compliance with all regulatory requirements and the condition of not conducting business in the mainland UAE. This treatment would apply to businesses established in all free zones including financial free zones.
Taxable Income
- Taxable income will be the accounting net profit after making certain adjustments that would be provided in UAE CT law
- Income from dividends, capital gains from qualifying shareholding and qualifying intra-group transactions and reorganizations, will be exempt from taxation, subject to satisfaction of certain conditions such as ownership threshold and a minimum holding period
- UAE CT law will allow set of and carry forward of losses subject to conditions as may be prescribed.
Tax Rates
- The CT rates are:
| Taxable Income | Corporate Tax Rates |
| up to AED 375,000 | 0% |
| Above AED 375,000 | 9% |
- A different tax rate will apply in case of large multinationals that meet specific criteria set with reference to ‘OECD Base Erosion Profit Shifting project’ (i.e., having consolidated group revenue exceeding Eur 750 m). There will be no withholding taxes on payments to non-residents. Further foreign CT paid on UAE taxable income would be allowed as tax credit against UAE CT liability.
Filing of Tax Return and payment
- The CT return is to be filed electronically once a year. The filing date for the tax return has not been confirmed
- No provisional or advance CT filings will be required
- No advance CT payments will be required
Implications
The introduction of the CT regime will have a significant impact on taxation of UAE businesses. Though businesses in Free Zones will mostly continue to enjoy tax exemption/incentives, subject to meeting prescribed conditions, there would be an increase in the compliance burden as they would need to register and file CT returns. Higher tax rate (potentially 15% in line with BEPS – OECD Base Erosion Profit Shifting project – proposal) may apply to large multinational corporations. Companies should monitor further developments and additional details are expected to be announced in near future