Corporate Tax (CT) Law to be Implemented in the UAE in 2023

The Ministry of Finance (MoF) of the United Arab Emirates (UAE) recently announced its plan to impose a new corporate tax (CT) regime on businesses starting June of 2023.   

By establishing and enforcing the CT law, UAE hopes to: solidify its position as the leading business and investment hub around the world, speed up its development so it can reach its strategic goals, and reaffirm its commitment towards meeting international standards in relation to tax transparency and restricting harmful tax practices.   

Let’s take a closer look at this new tax regime, its key elements, and the potential impact on businesses across the country.   

Scope of the New Corporate Tax in UAE   

The corporate tax is applicable to all businesses conducting a trade or commercial activities in the seven emirates, whether they are run by a legal entity or a person. All those who will be affected by the implementation of CT law are advised to consult with tax and litigation experts in UAE. Natural resource extraction e.g. oil and gas will still be subject to a corporation tax at the emirate level.   

A legal entity’s operations are considered “business activities” and they fall under the new corporate tax regime. Furthermore, a person will be considered to have a “business” that is covered by the corporate tax if the said individual has been granted a commercial license or business permit in the UAE.   

Corporate tax won’t be applicable on:   

  • A person’s salary or compensation from a job or employment. On the contrary, a person will have to pay corporate tax if he or she makes money from activities that require a trade license or permit. 
  • Capital gains, dividends, and other forms of income from shares or securities.  
  • Real estate investment by an individual in his/her personal capacity given the said individual isn’t required by law to obtain and maintain a trade/commercial license/permit for carrying out the investment within the UAE.  
  • Interests and any other income of an individual through savings schemes and bank deposits.

The MoF stated that these are also exempt under the CT law:  

  • Capital gains and dividends from qualifying shareholdings of a business operating in mainland UAE e.g. ownership in a foreign or UAE business that meets the specific conditions set under the Corporate Tax law; and 
  • A qualifying intra-group transaction and reorganization which meets all the requirements and conditions that are laid out in the Corporate Tax law.

Corporate Tax Rates in the UAE  

The rates under the Corporate Tax law are as follows:  

  • 0% – applicable to businesses and individuals with a taxable income of not more than AED 375,000 
  • 9% – applicable to individuals and businesses with taxable income over AED 375,000  

Take note: a different corporate tax rate will be set for large multinational corporations that meet the specific criteria of the Ministry of Finance with reference to Pillar Two of the OECD project, Base Erosion & Profit Shifting (BEPS).   

You may also like: Deductible & Non-Deductible expenses under the corporate tax in UAE

Impact of UAE Corporate Tax Law on Businesses    

As mentioned earlier, the headline corporate tax rate is 9% for businesses that have taxable incomes of more than 375,000 UAE dirham or USD$102,000. This rate does not apply to businesses in the free economic zones that don’t do business within the mainland. Separately, another rate will be announced for the businesses that would be affected by the OECD reforms on Pillar Two. These are businesses with international consolidated revenues of more than 750 million euros or USD$795 million, which are called multinational enterprises or MNEs.   

The 9% Corporate Tax rate is important to recognize as highly competitive in relation to the rest of the world. Even within the Middle East, it’s the lowest rate, if you don’t count Bahrain, as it hasn’t started a Corporate Tax regime of its own yet.   

In addition to such competitive rates under the Corporate Tax law, the government could also lower or even get rid of fees for licenses and other costs for setting up businesses. This would definitely lessen how much the tax can affect the bottom-line of businesses in the country that make money.  

If profitable, it is anticipated that the UAE free zones will also entice start-ups and expanding businesses to make a shift from the mainland. Due to competition and market conditions within the many free zones to recruit the greatest number of enterprises, this may lead them to significantly lower fees such as annual licensing fees. Indeed, there are exciting times ahead.  

Corporate Tax Advisory Services in Dubai 

The announcement of the Ministry of Finance on the implementation of the Corporate Tax law provided certainty on key principles such as scope, timing, rates, and tax base. The businesses that will be affected are encouraged in consulting with corporate tax advisors in UAE on the development of a roadmap for assessing the implications on their respective operations. This includes contracting, business model, and legal structure. Talk to the corporate tax advisors in Corporate Tax UAE to address your concerns as soon as possible!   

References

https://www.mof.gov.ae/en/resourcesAndBudget/Pages/faq.aspx

https://u.ae/en/information-and-services/finance-and-investment/taxation/corporate-tax