Introduction about Corporate Tax
According to UAE Federal Decree No. 47 of 2022 on Taxation of Companies and Businesses (the “Corporate Tax Law”), businesses are subject to UAE corporate tax from the beginning of the first financial year commencing after 1 year. June 2023. What is corporate tax (CT)? Corporate tax is a type of direct tax levied on the net profit or profit of a company or other entity.
Purpose of CT
By introducing the CT, the UAE aims to:
- Consolidate our position as a leading global hub for business and investment.
- Accelerate development and transformation to achieve strategic goals.
- We reaffirm our commitment to meet international standards for tax transparency and to prevent harmful tax practices
Scope - CT will apply to:
- All companies and individuals operating under a commercial license in the United Arab Emirates.
- Free Zone Businesses (The UAE CT regime will comply with all regulatory requirements and will continue to honor the CT incentives currently offered to free zone businesses not carrying on business established in the UAE mainland.)
- ONLY FOR FOREIGN ENTITIES AND INDIVIDUALS CONTINUOUSLY OR REGULARLY TRADE OR BUSINESS IN THE UAE.
- Businesses engaged in the management, construction, development, agency and brokerage of real estate.
Exemptions from CT - Below are the rules for corporate tax exemption.
- Companies engaged in the extraction of natural resources are subject to current Emirati-level corporate tax and are therefore exempt from the CT.
- Dividends and capital gains earned by UAE companies from qualifying shareholdings are exempt from CT.
- Eligible intragroup transactions and organizational restructurings are not subject to CT ifthe necessary conditions are met.
Additionally, CT will not apply to:
- Personal income wages and other employment income, whether received from the public or private sector.
- Interest and other income earned by individuals from bank deposits or savings plans.
- income of foreign investors derived from dividends, capital gains, interest, royalties and other investment income.
- Real estate investment by individuals in their personal capacity.
- Dividends, capital gains, and other income earned by an individual by owning stocks or other securities in an individual capacity.
CT Rate - As per Ministry of Finance, CT rates are:
- 0% taxable income up to AED 375,000.
- 9% of taxable income over AED 375,000 and
- Different tax rates (not yet specified) for large multinationals meeting certain criteria set with reference to Pillar 2 of the OECD Base Erosion and Profit Shifting Project.
