Looking for the Corporate Tax Advisors in UAE?

Application of Corporate Tax in UAE

The UAE Corporate tax applies to all enterprises and commercial operations conducted inside the country’s seven emirates. There are, however, a few exceptions:• Businesses engaged in natural resource exploitation.
• Individuals receiving money in their personal capacity (i.e. wage, investment income) will continue to be subject to the tax decrees issued by the different Emirates, as long as the revenue-producing activity does not need a commercial license.
• Businesses registered in Free Trade Zones adhere to all legal criteria and do not do business with the mainland UAE.

It’s worth noting that the international banking industry, which has been subject to Emirate-level bank tax decrees, will now be subject to the UAE Corporate Tax Law. CT’s effect on the Emirate’s banking tax decree will be announced in due time. It will be a significant change for both overseas bank branches that will be required to comply with the new law and domestic banks that, like other companies, will now be liable to corporation tax in the UAE.

The Goals of the New Corporate Tax in the UAE

The introduction of corporate tax in the UAE has the following objectives:• Improving the UAE’s reputation as a world-class commercial and investment destination;
• Meeting international tax transparency criteria and avoiding unfavorable tax consequences.
• Accelerating the UAE’s development and transformation to achieve its strategic objectives.

Enforcement Date of Corporate Tax in the UAE

The  UAE Corporate Tax will take effect in fiscal years beginning on or after June 1 2023. Starting June 1 2023, any business that adopts a fiscal year starting on June 1, 2023, and ending on May 31 2024, will be subject to Corporate Tax in UAE. The first tax return is expected to be filed by the end of 2024. Any corporation that begins its fiscal year on January 1 2023, and ends on December 31 2023, will be subject to Corporate Tax beginning January 1 2024, with filing expected in mid-2025.

Rate of Corporate Taxation

The following rates will apply to corporations:
• A 0% tax rate on taxable income up to AE$375,000 (about US$02,095).
• A 9% tax rate on taxable income over AE$375,000 (about US$102,095).
• A separate tax rate for major multinational corporations that fulfil particular conditions established following the OECD’s Base Erosion and Profit Shifting project’s Global Anti-Base Erosion Model Rules (Pillar Two).

Untaxed Income Under Corporate Tax

Corporate tax will not apply to the following:

• A person’s salary or earnings from their job. However, if a person’s income is obtained through activities performed under a freelancing license or permission, the individual will be liable to company tax.
•  Individuals may invest in real estate in their personal capacity, provided they do not need a business license or license to conduct such activity in the UAE.
•  Dividends, capital gains, and other income are derived through personal ownership of shares or other assets.
•  Individuals gain interest and other revenue through bank accounts or savings plans.
  

Corporate tax in Free Trade Zone

The UAE aims to adhere to its promise to enterprises registered in Free Trade Zones that do not do business with the mainland by taxing them at a zero per cent corporate tax rate in the UAE (or exempting them entirely) until the conclusion of the vacation period. Each free zone is required to submit an annual CT return.

Businesses having operations on both the Mainland UAE and the Free Trade Zones and those operating under the dual licensing system should evaluate the implications for their operating strategy.
In some instances, free zone enterprises will be liable to UAE corporate tax.
Corporate taxes now apply to all businesses in the UAE. Meanwhile, the UAE government emphasized that no personal income tax will be levied. In the event of free zones, the corporation tax rate of 9% will apply to firms based inside them that benefit economically from the mainland. “The benefits already accessible to free zone firms will be recognized for businesses that follow all regulatory criteria and do not do business with the rest of the UAE. The adoption of corporate tax in the UAE signals a watershed moment – a paradigm shift – for the nation and its business community for the first time in the country’s history.”