UAE's BEPS Success: Corporate Tax Law Brilliance

Base Erosion and Profit Shifting (BEPS) has outlined the corporate tax structure of the UAE to implement and align according to the international standards as projected by the OECD in 2015. This follows the announcement of the measures responding to profit shifting and evasion of tax. The UAE has signed with the BEPS as a component of the OECD, having an objective to combat tax evasion by multinational entities. The determination of whether a business or person is liable to tax is one of the steps taken while implementing these global measures. 

Components of BEPS

Base Erosion and Profit Shifting (BEPS) comprises two main components commonly known as “Pillars”

  • Pillar one: -The main objective of the first pillar is to harmonize the remuneration for ongoing marketing and sales activities and to distribute (part of) the consolidated profit of the multinational to the jurisdictions where the sale takes place.
  • Pillar two: -The 2nd pillar of Base Erosion and Profit Shifting (BEPS) proposes the concept of a minimum tax rate of up to 15 percent on the worldwide income of Multinational companies to make the tax ratio effective.

UAE & BEPS Agreement 

The agreement was finalized among the Base Erosion and Profit Shifting (BEPS) and other 130 countries including the United Arab Emirates in October 2021. The state has made untiring efforts to increase transparency and elevate effective tax practices as per the guidelines of the OECD by avoiding harmful practices.

Pillar 2 Implementation by UAE proposed by OECD

The Ministry of Finance (MOF) signed an initial contract with OECD (Organization for Economic Cooperation and Development) in 2007 to build strong partnerships in tax issues by sharing experiences and exchanging information specifically regarding Country by Country reporting standards and regulations for economic substance. The OECD has proposed a two-pillar approach to tax issues related to the ongoing digitization of the economy, namely: the “first pillar” and the “second pillar”. 

Read more: Companies to comply with CBC Reporting under Corporate Tax UAE

Application on Multinational companies

To meet Pillar 2 requirements, large multinational companies (e.g. those with a consolidated turnover of more than €750 million) must pay a tax of at least 15% on their total income; regardless of the country they are active. The provisions of the second pillar are expected to come into force in 2023.

Federal Decree-Law No.47th of 2022

The United Arab Emirates is working with the G20 countries to implement the proposals under Pillar Two of Base Erosion and Profit Shifting (BEPS) which is envisaged from the enactment of New Corporate Tax Law, UAE issued on 9th December 2022 namely the Federal Decree-Law No.47th of 2022 by levying the corporate tax on corporations and industries comprises such features of the existing tax system by advancing the competencies, range, and scope of federal tax law in the United Arab Emirates. According to this law, the application will begin to be enforced in the commercial sector after June 1, 2023, based on recognized international tax rules and regulations. It contains the international codes of principles.

Implementation Effective date

More details on how the Pillar 2 regulations are integrated into the system offered in the UAE are provided under the newly announced corporate income tax regime that will come into effect from 1 June 2023.

Read more: Companies Transfer Pricing in the UAE: According to the New Corporate Tax Law

Other international reporting requirements

Under the original BEPS project, large multinational companies are required to produce country-by-country (CBC) reports containing financial data on the overall distribution of their income, company profits, taxes paid, and information on the company's operations in different country tax regimes for sectors. Jurisdictions in which they operate.

The UAE has adopted Country by Country Reporting (CBC) which requires UAE multinational companies to implement them for financial years beginning on or after 1 January 2019. As per the Corporate Income Tax Law, UAE all requirements and latest regulations have been approved and will be enforced as per the prescribed date, June 1st 2023.

UAE Corporate Tax Consultant

All UAE companies (both onshore and free zones) need to analyze their financial accounts, determine whether they are eligible to pay tax or not according to new corporate tax law, register them for the corporate income tax, and obtain a corporate tax registration number, if required, to comply with the new corporate tax law as the UAE has signed with the BEPS(the Base Erosion and Profit Shifting which is a part of the OECD having an objective to combat tax evasion by the corporate entities having international recognition. Determining whether a business or person is liable to tax is one of the steps taken while implementing these global measures.


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