- Overview
The UAE Ministry of Finance (‘MoF’) issued a press release confirming the introduction of the much anticipated
Corporate Tax (‘CT’) in the UAE. The press release confirms taxability of business profits at a headline rate of
9% and 0% (for profits up to AED 375,000 to support small businesses and start-ups). The UAE CT regime will
be effective for financial years(‘FY’) commencing on or after 1 June 2023 and will be a Federal tax, applying
uniformly across the seven Emirates
In detail:
Applicability
The UAE CT regulations will apply to all entities in theUAE except those engaged in the extraction of natural
resources, which are already subject to tax by the respective Emirate. The Emirate level taxation will
continue for such entities.
The UAE CT regulations will also apply to the banking sector and no exemptions have been given to any
specific industries.
Further, foreign entities and individuals will be subject to UAE CT if they conduct any trade or
business in theUAE on a regular basis.Tax rate
The MoF has proposed the following rates of taxation:
Taxable income up to AED 375,000 – 0%
Taxable income above AED 375,000 – 9%
Large multinational enterprises meeting the consolidated revenue thresholds specified in ‘Pillar Two’
(Euro 750 million / AED 3.15 billion) would be taxed at a different rate.
First tax period
The UAE CT regulations will become effective for FYs starting on or after 1 June 2023.
For example, a company that follows the calendar year and has a FY of 1 January 2023 to 31 December
2023 will be subject to CT in UAE from 1 January 2024.
Computation mechanism
The tax payable will be computed on accounting profits as per the financial statements adjusted for
certain items to be specified under the UAE CT law.
For example, if a business has a taxable income of AED450,000 (after all adjustments), the CT payable would be
computed as follows:
AED 0 to AED 375,000 at 0% – AED 0 (a)
AED 375,000 to AED 450,000 at 9% – AED 6750 (b)
Thus, the CIT liability would be AED 6750 [(a) + (b)]. The UAE CIT law will also provide for reduction of any
foreign taxes paid from the total tax payable.
Impact on free zones entities
CT incentives currently provided by the various free zones will continue even under the new CT regime provided
that the entities comply with all regulatory requirements and that do not conduct business with mainland UAE.
Set-off and carry forward of losses
Entities will be allowed to utilise prior period losses (from the effective date onwards) to offset taxable
income. Excess losses can also be carried forward to the subsequent year, if certain conditions are met.
Further details on the set-off and carry forward of taxlosses will be provided in the UAE CT law.
CT Group
The UAE CT regulations will allow group of companiesto form a tax group and file a single tax return for the
entire group, subject to certain conditions. Further guidance and details on the tax grouping will be provided
in the UAE CT law.
2
Exemptions
Currently, dividends and capital gains earned from ‘qualifying shareholdings’ will be exempt from CT in the
UAE. The exact definition of ‘qualifying shareholdings’ will be specified in the UAE CT law.
Further, UAE CT will not be levied on a foreign investor’sincome fromdividends, capital gains, interest,royalties
and other investment returns
Withholding taxes
Currently the UAE CT regime does not envisage withholding taxes on domestic as well as cross-border
payments of dividend, interest, royalties or any other payments.
Transfer pricing
UAE companies undertaking transactions with related parties will be required to ensure arm’s length
pricing of transactions and comply with the rules and documentations set out under the Organisation
for Economic Co-operation and Development (‘OECD’) Transfer Pricing Guidelines.
Individual taxation
Individuals will not be subject to CT in the UAE on salary and other employment income, dividends,
capital gainsand other income earned from owning shares or other securities in their personal capacity.
Further, interest and other income earned by an individual from bank deposits or saving schemes will
also not be subject to CT in the UAE.
Tax authority and administration
The Federal Tax Authority (‘FTA’) will be the authority responsible for administration, collection, and
enforcement of CT in the UAE.
The MoF will be the ‘Competent Authority’ for international tax matters and international exchange of
information for tax purposes.
UAE CT returns will be filed on an annual basis electronically. The CT regime does not require any
provisional or advance CT filings.
Further details on the electronic filing, CT compliance requirements and penalties for non-compliance
will be prescribed in the UAE CT law.
Our Views and Observations
The CT regime in the UAE aims to be a simple and straight forward law ensuring minimal compliance
burden on UAE entities. The tax rates have also been liberalized at 0% and 9%.
The UAE has once again proven its commitment towards being a tax transparent regime and the
introduction of CT is a big step in keeping up with the international standards of taxation.
With UAE being a signatory to the BEPS Inclusive. Frame work, a global minimum tax of 15% was anyway
envisaged in 2023 for large multinationals in the UAE
The CT regime in the UAE aims to be a simple and straight forward law ensuring minimal compliance
burden on UAE entities. The tax rates have also been liberalized at 0% and 9%.
The UAE has once again proven its commitment towards being a tax transparent regime and the introduction
of CT is a big step in keeping up with the international standards of taxation.
With UAE being a signatory to the BEPS Inclusive
Framework, a global minimum tax of 15% was anyway envisaged in 2023 for large multinationals in the UAE
crossing the consolidated revenue threshold of Eur 750 million / AED 3.15 billion.
While further clarity on various aspects is awaited in the formal UAE CT law, the press release and related
FAQs issued by the UAE MoF addresses the key areas such as applicability of CT regime, tax rates, exemptions
and exceptions, transfer pricing, applicability of withholding taxes and mode of filing.
An interesting aspect of the proposed CT regime is the provision to form a tax group and file a single tax return
which is currently permitted only in a few countries across the globe.
Another point to note is that the UAE CT regime does not intend to impose withholding taxes on domestic or
international payments even though the UAE has a very strong network of Double Tax Treaties.
While we await the formal CT law, UAE companies are advised take proactive measures in determining the
impact of the proposed CT regime and prepare for what
is only the beginning of corporate taxation in the UAE
Why Marhaba Accounting
We understand that business success starts with people. And we’ve consulted hundreds of businesses, applying
the required standards to each, so we can genuinely benchmark the business performance. We’ve also trained
hundreds of individuals who practices them at their professional work life and know we can take you from
beginner to Management System expert quickly –wherever you are on your learning journey, we can tailor
training to you and your business
Cost Benefits of Our Services:
No Visa Cost | No Hiring Cost | No Air Ticket | No Gratuity
We provide several consultancy services to our prestigious clients including:
Accounting & Bookkeeping – outsource service (Daily, Weekly, Monthly, Annual)
VAT Registration
VAT Return Submission
VAT Implementation
Internal Audits
Cost Reduction Studies
Customized ERP’s, Accounting Software and HR Software tailored for your needs with vat implementation option
Tally software implementation service
Implementation of customised Software for Real Estate Leasing and Accounting with perfect vat
implementation option
POS System Implementation Service
Company Information
MARHABA ACCOUNTING AND TAX SERVICES
Registration No. : 799849
PO Box No. : 236392
Address : Office 310 4th Level – Ent 05 Belhoul Group
Building, Near Ggico Metro, Al Garhoud
Tel. : 050 709 1420 | 050 4607145| 04 294 0135
Fax. : 04 294 0135
Email : info @ marhabatax.com
Web Address : www.marhabatax.com
05 Sep 2022
