Corporate Tax in the UAE | A Complete Guide
Corporate tax in UAE is a direct tax levied on the net income of companies and other business entities. In other countries this figure has the name of “Income Tax”. Likewise, on January 31, 2022, the UAE Ministry of Finance (MOF) implements a new UAE federal corporate tax system. This tax system begins from June 1, 2023, through Decree-Law Federal 47 of 2022. Although despite this, the UAE is the country with the lowest tax in the region with 9% behind Bahrain.
In this article, you will learn about corporate tax in the UAE.
- What is the objective of Federal Decree-Law 47 of 2022?
- What is the corporate tax in UAE?
- Know the UAE corporate tax rates
- Who will be subject to corporate tax in the UAE?
- Learn about the tax exemptions
- Will it be possible to apply corporate loss transfer regimes?
- Application of corporate tax to non-residents of the UAE
- See the general considerations
- How can we help you apply for corporate tax in the UAE?
1. What is the objective of Federal Decree-Law 47 of 2022?
The Ministry of Finance of Dubai and of the UAE created the Federal Decree-Law 47 of 2022. In this sense, like any law, Federal Decree-Law 47 of 2022 has various objectives, among which the following stand out:
- Create a competitive regulatory framework to consolidate the position of UAE as a leading global center for business and investment. And it is that without a doubt, the UAE is already an extremely attractive country for the investment of foreign capital, but it will be even more attractive with a new and solid regulatory framework.
- In the same way, comply with international tax transparency standards and prevent harmful tax practices. Most countries in the world have a comprehensive corporate tax regime, including most Gulf Cooperation Council member states. Only Bahrain as a member country of this council does not have a regulatory framework on this matter.
2. What is the corporate tax in UAE?
The corporate tax UAE is a federal corporate tax in UAE. In this sense, this new regulation will be effective for the fiscal years that begin on June 1, 2023. Therefore, this means that a company that has a fiscal year that begins on July 1, 2023, and ends on December 30, June 2024 will be subject to UAE corporate tax from July 1, 2023. In this sense, this is the beginning of the first fiscal year beginning on or after June 1, 2023.
On the other hand, a company that has a fiscal year beginning on January 1, 2023 and ending on December 31, 2023 will be subject to UAE federal corporate tax from January 1, 2024. That means that this is the beginning of the first fiscal year. This fiscal year begin on or after December 31, 2023, on or after June 1, 2023.
3. Know the UAE corporate tax rates
These will be the new UAE corporate tax rates:
- The UAE tax rate will be 9% for taxable income above Dh 375,000.
- It will also apply a 0% tax rate on taxable income up to AED 375,000 to support small business.
- Similarly, there will be a different corporate tax rate for large multinational corporations that meet the ‘Pillar Two’ conditions of the OECD’s UAE Tax Base Erosion and Profit Shifting project.
In this sense, a “multinational corporation” is a corporation that operates in its home country, as well as in other countries through a subsidiary, branch, or another form of foreign presence. Likewise, “Large multinationals” refers to a multinational corporation that has global revenues of more than 750 million euros.
4. Who will be subject to corporation tax in the UAE?
The UAE Corporate taxes will apply to all businesses and commercial activities in the UAE equally, with the exception of the oil and gas sector. This means that the extraction of natural resources will remain subject to corporate taxes in UAE.
In this regard, corporate tax in UAE will generally apply to UAE income tax earned from activities carried out under a freelance license although no corporate tax will be paid unless the freelancer’s annual net income exceeds AED 375,000.
However, this tax will not apply to foreign investors who do not conduct business in UAE on a regular basis.
Likewise, free zone companies will be subject to the UAE corporate tax, but the UAE corporate tax regime will continue to respect the tax incentives currently offered to free zone companies that meet all regulatory requirements and who do not conduct business within the UAE.
5. Learn about the tax exemptions
In relation to legal persons, investment in real estate by natural persons in their personal capacity will continue to be exempt from UAE corporate income tax, provided that the legal person is not required to obtain a trade license or permit to carry out your activity in the UAE, investment in shares or other personal income that is not related to UAE trade or business.
In relation to corporations, a UAE company’s dividends from its qualifying holdings will be exempt from this corporate tax. Likewise, corporation tax will not be applied to admissible intragroup transactions and restructurings.
Other exempt subjects are government entities, pension funds, investment funds, and charitable organizations.
For its part, in accordance with the Corporate Tax Law, Corporate Tax will not apply to salaries or other personal earnings from work, whether they come from work in the governmental, semi-governmental, or private sector. Interest and other personal income obtained from bank deposits or savings programs, as well as investments in real estate made by natural persons in a personal capacity, are also not subject to corporation tax.
6. Will it be possible to apply corporate loss transfer regimes?
The corporate tax regime will allow a company to use its losses to offset taxable income in subsequent financial periods. In this sense, a loss for the purposes of corporate tax in the UAE will arise when the total deductions that companies can claim are greater than the total income of the corresponding financial period.
Likewise, the company can combine the excess tax losses with the tax base of future years as long as certain conditions are met. On the other hand, in the case of a group of companies, the negative tax bases of one group company may offset the taxable income of another group company.
7. Application of corporate tax to non-residents of the UAE.
Non-residents are also subject to corporate tax if they have a permanent entity in the country, as well as on state-sourced income, that is, from the sale of goods, the provision of services in the country, etc. Likewise, the income of non-residents from the operation of aircraft and ships in international space is not subject to tax. A non-resident is not subject to corporate tax on income through an investment manager in real estate or any investment.
8. See the general considerations
These are some general considerations about corporate tax in the UAE:
- The application of corporate tax will be on the net accounting profit of the company.
- For its part, there will be no application of any corporation tax on the capital gains and dividends of a UAE company for its qualifying holdings.
- There will be no withholding tax applied to domestic and cross-border payments.
- The corporate income tax for foreigners will be a tax credit against the 2023 UAE corporate tax liability.
- Likewise, a group of UAE companies may choose to form a tax group and be treated as a single taxable person, provided certain conditions are met. A UAE tax group will only need to file a single tax return for the entire group.
- Similarly, companies will have enough time to adapt to the introduction of corporate tax. In this sense, it must be taken into account that, like other taxes in the UAE such as VAT, companies may be subject to sanctions for non-compliance with the corresponding regime.
In assessing whether or not the UAE will continue to be a suitable jurisdiction to consider, we cannot emphasize enough the flexibility of this new tax in UAE law, the exclusion of free zones, a reasonable preparation period, and the fact that 9% remains very below the world average for corporate taxes which is 23.6%.
On the other hand, the following organizations will be excluded from the application of corporate tax:
- Family Foundations.
- Benefits of Investments in the real estate sector and savings/funds of individuals.
Similarly, to obtain more information, you can enter the website of the Ministry of Finance of the UAE (MOF UAE).
UAE Ministry of Finance web: mof.gov.ae.
9. How can we help you apply the corporate tax in the UAE?
UAE continues to stand out as the ideal country for high-net-worth that search of more tax-flexible jurisdictions. Therefore, if you are interested in obtaining more information, your best option will always be EOR Middle East.
Here, we have the years of experience and the staff you need to be the best ally for your company. If you feel that you need the corporate services of a company in the Middle East, do not hesitate to contact us through the following email address: [email protected]. Our agents will attend to you quickly and will resolve all doubts as soon as possible.
But if what you really want is to work in a great country like the United Arab Emirates and in a great company in this country like EOR Middle East, what you should do is send us your CV to: thetalentpoint.com or to the email address email: [email protected]. We have a wide range of recruiters who will give a timely and quick response to your request.
