After VAT, the UAE has now planned to also introduce corporate tax rate in the country. Although it has been mentioned or introduced as corporate tax rate but it will be applicable to everyone be it individual or other entities/ organizations who are running any commercial activity. Further, there will be two tax rates 0% for taxable profit upto AED 375000 and above that 9%.
Let’s read about the same in detail as under:
The UAE will introduce a federal Corporate Tax on business profits effective for financial years starting on or after 1 June 2023. The UAE Corporate Tax regime has been designed to incorporate best practices globally and minimise the compliance burden for UAE businesses.
Given the position of the UAE as a global financial centre and an international business hub, the UAE Corporate Tax regime will support investment and headquarters activities and ensure the free flow of capital, trade, financing, and services.
His Excellency Younis Haji Al Khoori, Undersecretary of Ministry of Finance (MoF), “As a leading jurisdiction for innovation and investment, the UAE plays a pivotal role in helping businesses grow, locally and globally. The certainty of a competitive and best in class Corporate Tax regime, together with the UAE’s extensive double tax treaty network, will cement the UAE’s position as a world-leading hub for business and investment. The introduction of a Corporate Tax regime will help the UAE achieve its strategic ambitions and incentivise businesses to establish and expand their activities in the UAE,”
With a standard statutory tax rate of 9% and a 0% tax rate for taxable profits up to AED 375,000 to support small businesses and startups, the UAE Corporate Tax regime will be amongst the most competitive in the world.
On 26 July 2021, the Ministry of Finance issued an official statement confirming the UAE’s support of the global minimum effective tax rate as proposed under “Pillar Two” of the OECD Base Erosion and Profit Shifting project. The introduction of a UAE Corporate Tax regime will provide a basis for the UAE to execute its support by applying a different Corporate Tax rate to large multinationals that meet specific criteria set with reference to the above initiative.
Businesses will have ample time to prepare for the introduction of Corporate Tax, and further information on the UAE Corporate Tax regime will be provided towards the middle of 2022 to help businesses get ready and be fully compliant.
To read about announcement of Corporate Tax Rate by UAE CLICK HERE.
Some FAQ’s related to above corporate tax rate introduced by UAE are as under:
01 Who will be subject to UAE CT?
UAE CT will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation
02 How do you determine whether a legal entity has a “business” that will be within the scope of UAE CT?
All activities undertaken by a legal entity will be deemed “business activities” and hence be within the scope of UAE CT
03 How do you determine whether an individual has a “business” that will be within the scope of UAE CT?
This would generally be done by reference to the individual having (or being required to obtain) a business licence or permit to carry out the relevant commercial, industrial and/or professional activity in the UAE
04 How do you determine the business profit / income that will be subject to UAE CT?
The taxable income will be the accounting net profit of a business, after making adjustments for certain items to be specified under the UAE CT law
The accounting net profit of a business is the amount reported in the financial statements prepared in accordance with internationally acceptable accounting standards
05 What will the UAE CT rates be?
The CT rates are:
- 0% for taxable income up to AED 375,000;
- 9% for taxable income above AED 375,000; and
- a different tax rate for large multinationals that meet specific criteria set with reference to ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project.
06 Will an individual’s salary income be subject to UAE CT?
UAE CT will not apply on an individual’s salary and other employment income (whether received from the public or private sector)
07 Will an individual who has a commercial license to carry out business in the UAE be subject to UAE CT?
Business income earned under a commercial license will be within the scope of UAE CT
08 Will an individual who invests in UAE real estate be subject to UAE CT?
The investment in real estate by individuals in their personal capacity should not be subject to UAE CT provided the individual is not required to obtain a commercial license or permit to carry out such activity in the UAE
09 Will an individual be subject to CT on investment returns?
Individuals will not be subject to UAE CT on dividends, capital gains and other income earned from owning shares or other securities in their personal capacity
10 Will the income earned by a freelance professional be subject to UAE CT?
UAE CT will generally apply to income earned from activities carried out under a freelance license / permit, albeit no CT will be payable unless the annual net income of the freelance professional exceeds AED 375,000.
11 Will a foreign company or individual be subject to UAE CT?
Foreign entities and individuals will be subject to UAE CT only if they conduct a trade or business in the UAE in an ongoing or regular manner.
12 Will income earned by a foreign investor be subject to UAE CT?
UAE CT will generally not be levied on a foreign investor’s income from dividends, capital gains, interest, royalties and other investment returns.
13 What are transfer pricing rules?
Transfer pricing rules seek to ensure that transactions between related parties are carried out on arm’s length terms (i.e. as if the transaction was carried out between independent parties)
14 Will transfer pricing rules be applicable to UAE businesses?
UAE businesses will need to comply with transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing Guidelines
15 If a business has earned taxable income of AED 400,000 in a given financial year, what will be the UAE CT amount payable?
The CT liability will be calculated as follows:
- Taxable income of AED 0 – AED 375,000 at 0% = AED 0
- Portion of taxable income exceeding AED 375,000 (i.e. AED 400,000 – AED 375,000 = AED 25,000) at 9% = AED 2,250
The UAE CT liability for the year will be AED 0 + AED 2,250 = AED 2,250
The final amount of UAE CT payable will be reduced by any foreign taxes incurred on the relevant income (see below under ‘Tax Credits’ section)
To read full FAQ CLICK HERE.
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Contributor on above article:
CA Naman Maloo (C.A., B.Com)
He is currently working as Partner – Direct Tax with Jain Shrimal & Co. in Jaipur having experience in dealing Assessments, Tax Audit, Tax planning for NRI, Business planning and consultation.
E-mail: firstname.lastname@example.org | LinkedIn: Naman Maloo