Corporate Tax

What is Corporate Tax?

Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses. Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.

When will the UAE Corporate Tax regime become effective?

The UAE Corporate Tax regime will become effective for financial years starting on or after 1 June 2023

Examples:

A business that has a financial year starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE CT from 1 July 2023 (which is the beginning of the first financial year that starts on or after 1 June 2023)

A business that has a (calendar year) financial year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE Corporate Tax from 1 January 2024 (which is the beginning of the first financial year that starts on or after 1 June 2023)

Corporate Tax applicable for?

UAE Corporate Tax will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation

How do you determine whether a legal entity has a “business” that will be within the scope of UAE CT?

All activities undertaken by a legal entity will be deemed “business activities” and hence be within the scope of UAE Corporate Tax

How do you determine the business profit / income that will be subject to UAE Corporate Tax?

The taxable income will be the accounting net profit of a business, after making adjustments for certain items to be specified under the UAE Corporate Tax law, The accounting net profit of a business is the amount reported in the financial statements prepared in accordance with internationally acceptable accounting standards

What will be the Corporate Tax rates?

The Corporate Tax rates are:

0% for taxable income up to AED 375,000;

9% for taxable income above AED 375,000; and

a different tax rate for large multinationals that meet specific criteria set with reference to 'Pillar Two' of the OECD Base Erosion and Profit Shifting project

Will an individual be subject to Corporate TAX on Salary, investment returns?

Individuals will not be subject to UAE Corporate Tax on dividends, capital gains and other income earned from owning shares or other securities in their personal capacity or interest on deposits

If a business has earned taxable income of AED 400,000 in a given financial year, what will be the UAE Corporate Tax amount payable?

The Corporate Tax liability will be calculated as follows:

Taxable income of AED 0 - AED 375,000 at 0% = AED 0

Portion of taxable income exceeding AED 375,000 (i.e. AED 400,000 - AED 375,000 = AED 25,000) at 9% = AED 2,250

The UAE Corporate Tax liability for the year will be AED 0 + AED 2,250 = AED 2,250

Will a free zone business be subject to UAE Corporate Tax?

Free zone businesses will be subject to UAE Corporate Tax, but the UAE Corporate Tax regime will continue to honor the Corporate Tax incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE

Will a free zone business be required to register and file a return?

A business established in a free zone will be required to register and file a Corporate Tax return further details on the compliance obligations of free zone businesses will be provided in due course

Source: Federal Tax Authority,
Ministry of finance

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