The latest Federal Law No. 47 of 2022, governing the UAE Corporate Taxes operation was issued on the 9th of December, 2022. The recent statute confers that any individual or entity that is subject to the corporate tax UAE ought to be either a resident of the country in which the tax is levied or has to be treated as a resident for tax purposes.
This encompasses the following:
- A legal entity established in the UAE, including businesses operating in Free Zones,
- A legal entity established outside the UAE, however, being controlled and operated within the UAE.
- Any natural citizen who deems to conduct a business operation in the UAE.
Notwithstanding, the non-residents or nontaxable individuals include:
- The non-permanent establishments in the UAE,
- The non-UAE-sourced resident's income, and
- The non-nexus residents in the UAE generate UAE-sourced revenue.
The exempted persons encompass government entities, coalition organizations, persons engaged in an extractive corporation, persons engaged in a quell resource extraction business, defining community benefit entities, qualifying investments, pension funds, and social security funds. Notwithstanding, a legal resident payer ought to pay corporate tax on their internationally taxable income, a natural resident payer must pay corporate tax return online only on their taxation relating to business in the UAE, and unincorporated partnerships are exempt from corporate tax if they meet the requirements set forth by the Federal Tax Authority (FTA).
Taxable income attributed to permanent establishments, personal income tax not attributable to the permanent establishments, and income attributable here to the nexus of the semi-taxable person in the UAE are all subject to taxation by the non-resident taxable person. The payer ought to pay zero percent corporate tax on taxation not surpassing the level and nine percent on taxation above the threshold.
Exemption of Investment Fund Businesses from Corporate Tax UAE
Article 10 of the UAE Federal law no 47 confers that an investment fund business is allowed to apply to the regulatory authority (Federal Tax Authority, in this regard) in order to remain exempt from the corporation tax. The legislation presents the following conditions if an investment fund business deems to stopover over the scope of corporate tax;
- If the manager of the investment fund business or the business respectively is being overseen by some other regulatory authority in the UAE or in UAE-recognized foreign legislation, then it is permissible for such businesses to apply for an exemption to the FTA.
- If the investment fund business markets and trades its interests on the prominent stock exchange markets and allows an adequately vast number of investors to avail of these interests.
- A qualifying investment fund business can apply and remain out of the corporate tax framework if its sole intent is not to avert corporation tax. The exemption would not be allowed if the authority finds out that the business has only applied to avoid corporation tax.
Read more: Who is Exempt from the UAE Corporate Tax?
Which Type of Income is Applicable to the Corporate Tax UAE?
Primarily, wages and other forms of employment income, interest and other forms of personal income received from bank deposits and saving programs, notwithstanding, real estate investments made in an individual's capacity are not subject to the latest corporate tax.
Is the Corporate Tax UAE in Accordance with International Practices?
The Corporate Tax code was essentially developed in accordance with international best practices to encourage investment and guarantee that the law's underlying principles are clear and preserved. Given the UAE's diversified economy and bearing the chief objective of driving sustainable growth, it is highly imperative that the Corporate Tax regime is structured with the standing principles of prevailing justice and equity within sectors at the forefront.
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Abrar Ahmad holds a Master’s as well as an MPhil in Finance and has an extensive experience of 10+ years in managing all aspects of Taxation, VAT Consulting and Accounting. He also carries with him a working knowledge of corporate tax and has helped drive value and growth to the businesses of numerous clients.