Calculation of UAE Corporate Tax Liability

This section sets out the proposed approach to calculating the CT payable by a business, and how such CT liability may be satisfied.

Applicable CT rates

CT will be charged on the annual taxable income of a business as follows:

• 0%, for taxable income not exceeding AED 375,000; and
• 9%, for taxable income exceeding AED 375,000; or

Small business relief

A certain level of complexity is unavoidable in a CT regime for a diversified and innovative economy such as the UAE. Still, the Ministry of Finance intends to keep the UAE CT regime as simple as possible to minimize the compliance cost for business.

While larger businesses would generally incur a higher absolute cost in complying with their UAE CT obligations, in many tax systems around the world, the relative burden of tax compliance is disproportionately higher for small and medium-sized businesses. In fact, in many countries, the majority of the overall tax compliance cost is incurred by small (including micro) businesses.

In order to support start-ups and small businesses in the UAE, and to manage the compliance burden on these taxpayers, the UAE CT regime intends to provide relief for small businesses in the form of simplified financial and tax reporting obligations.

Withholding tax

Given the position of the UAE as a global financial center and an international business hub, a 0% (zero percent) withholding tax will apply on domestic and cross-border payments made by UAE businesses.

The following income shall be subject to 0% withholding tax:

• UAE sourced income earned by a foreign company that is not attributable to a PE in the UAE of that foreign company;
• Mainland UAE sourced income earned by a Free Zone Person that benefits from the 0% CT regime, unless the income is attributable to a mainland branch of that Free Zone Person; and
• Dividends and other profit distributions made by a Free Zone Person benefit from the 0% CT regime to a mainland UAE shareholder in the Free Zone Person.

Given the rate of withholding tax is proposed to be at 0%, UAE businesses will not be required to make any deductions from payments made, nor will there be an obligation to file withholding tax returns.

Calculation of CT payable

The amount of CT payable will be based on the taxable income for the relevant financial period (tax period).

The amount of CT payable will be based on the taxable income for the relevant financial period (tax period).

Tax Credits

As discussed in section 4.1, UAE resident companies will be subject to UAE CT on their worldwide income, which includes foreign-sourced income that may have been subject to a tax of a similar nature to CT by another country.

To avoid double taxation, the UAE CT regime will allow a credit for the tax paid in a foreign jurisdiction against the UAE CT liability on the foreign-sourced income that has not been otherwise exempted. This is known as the “Foreign Tax Credit”.

The maximum Foreign Tax Credit available will be the lower of:

● The amount of tax that was paid in the foreign jurisdiction; or

● The UAE CT is payable on the foreign-sourced income.

Any unutilized Foreign Tax Credit will not be able to be carried forward or back to other tax periods, nor will the FTA refund any unutilized Foreign Tax Credit.

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News Courtesy: Public Consultation Document UAE Corporate Tax