New UAE Corporate Tax Guidelines

What is Corporate Tax?

Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses.

Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.

Why is the UAE introducing CT?

A competitive CT regime based on international best practices will cement the UAE’s position as a leading global hub for business and investment, and accelerate the UAE’s development and transformation to achieve its strategic objectives

Introducing a CT regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices

Is the UAE the first country to introduce CT?

Most countries in the world have a comprehensive CT regime, including most of the GCC Member States

When will the UAE CT regime become effective?

The UAE CT regime will become effective for financial years starting on or after 1 June 2023

Examples:

• A business that has a financial year starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE CT from 1 July 2023 (which is the beginning of the first financial year that starts on or after 1 June 2023)
• A business that has a (calendar year) financial year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE CT from 1 January 2024 (which is the beginning of the first financial year that starts on or after 1 June 2023)

Will UAE CT be applicable to businesses in each Emirate?

The UAE CT is a Federal tax and will therefore apply across all Emirates

What will be the role of the Federal Tax Authority?

The Federal Tax Authority will be responsible for the administration, collection, and enforcement of UAE CT

What will be the role of the Ministry of Finance?

The Ministry of Finance will remain the ‘competent authority’ for purposes of bilateral/multilateral agreements and the international exchange of information for tax purposes

Scope and rate

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

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

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 license or permit to carry out the relevant commercial, industrial, and/or professional activity in the UAE

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 accepted accounting standards

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

What is meant by “large” multinationals?

A multinational corporation is a corporation that operates in its home country, as well as in other countries through a foreign subsidiary, branch, or another form of presence/registration. Merely earning income from outside its home country without a foreign presence or registration would not make a business a multinational corporation

In the context of the global minimum effective tax rate as proposed under ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project,” large” refers to a multinational corporation that has consolidated global revenues in excess of EUR 750m (c. AED 3.15 bn)

Will an individual’s salary income be subject to UAE CT?

UAE CT will not apply to an individual’s salary and other employment income (whether received from the public or private sector)

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

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

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

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.

Will income earned by an individual from bank deposits be subject to UAE CT?

Interest and other income earned by an individual from bank deposits or saving schemes will not be subject to UAE CT

If a business has earned a 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)

Will anyone be exempt from UAE CT?

Businesses engaged in the extraction of natural resources will remain subject to Emirate level corporate taxation and be outside the scope of UAE CT

Information on other UAE CT exemptions and exclusions will be provided in due course

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