The UAE introduces its first-ever corporate taxes, set to start in 2023

The Ministry of Finance to introduce federal corporate tax on business profits that will be effective for financial years starting on or after June 1, 2023.

Tax rates:
0% Tax rate for taxable income up to AED 375,000 to support small businesses and startups.
9% headline corporate tax rate for taxable income exceeding AED 375,000.

Authority:
Governing Authority: Federal Tax Authority
Competent Authority: Ministry of Finance, UAE

Key features:

1. Effective Date: For financial year starting on or after 1 June 2023
2. Applicability: All Businesses and Commercial Activities except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation
3. Income Exempt from Corporate Tax : Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempted.
4. Withholding Tax: No withholding tax will apply on domestic and cross border payments.
5. Tax Registration: Required by all business including in Free Zones.
6. Tax Returns: Only one Corporate Tax Return to be submitted electronically per financial period. Tax Group to submit a single tax return for the group.
7. Adjusted Accounting Profit: Corporate tax will apply on adjusted accounting net profit of the business (as reported in the financial statements prepared in accordance with internationally acceptable accounting standards).
8. Tax Credit: Credit of foreign Corporate Tax paid on UAE taxable income allowed against the UAE Corporate Tax liability.
9. Tax Grouping: Tax Group formation is allowed. UAE groups to be taxed as a single entity or to apply group relief in respect of losses and intragroup transactions and restructurings.
10. Advance Payment of corporate Tax: Not required
11. Free Zone Entities: Free Zone Businesses are subject to Corporate Tax. UAE Corporate Tax will continue honor the Corporate Tax incentives currently being offered to free zone that comply with all regulatory requirements and that do not conduct business with mainland UAE. Further information awaited.
12. Oil & Gas and Extractive Industries: Outside the Scope of UAE Corporate Tax. These will remain subject to Emirate level Corporate Tax.
13. Tax on Individual: No Tax on Salary and other employment Income. No Tax on Interest/ other income earned from bank deposits or saving schemes. Business income earned under a commercial license will be taxable
Income from real estate in personal capacity should not be subject to UAE Corporate Tax provided the individual is not required to obtain a commercial license/ permit to carry out such activity in the UAE.

Detailed Regulations, Guidelines and Compliance Mechanism would be announced by the MoF in coming days.

For further information & updates please visit Federal Tax Authority website:
https://tax.gov.ae/en