UAE to introduce a first-ever corporate tax to accelerate development.
Earlier in 2018, The UAE Government introduced a value-added tax on most goods and services at a standard rate of 5 percent. For the first time, the United Arab Emirates plans to impose a federal corporate tax (CT) of 9% on business profits starting from June 1, 2023, to boost the UAE's development and align with global best practices.
The Key highlights of the Corporate Tax Regime are as follows:
- All UAE businesses and Commercial activities will become subject to the 9 % UAE corporate tax on income above AED 375,000 from the beginning of their first financial year that starts on or after that date. To support small and medium-sized enterprises there will be a 0 tax rate for taxable profits up to Dh375,000 ($102,000). The UAE CT will be based on international best practices, with a low/minimal compliance burden on businesses.
- The corporate tax regime applies to all enterprises in the UAE, including those that benefit from free zone incentives. Businesses operating in the Free Zone must register and file a CT return, but they will continue to benefit from CT holidays and 0% taxation if they follow all regulatory requirements and do not conduct business in the mainland UAE.
- Income earned from activities carried out under a freelance license/permit that exceeds the minimum profit threshold of Dh375,000 would be subject to corporate tax.
- According to preliminary information, there will be a different tax rate for major corporations that meet the OECD Base Erosion and Profit Shifting project's 'Pillar Two' criteria (i.e. that have consolidated global revenues above EUR 750m). The provisions for loss set-off, adjustment of taxes paid in another country, and penalties for non-compliance will all be highlighted in this law.
- Personal income "from employment, real estate, and other investments, or any other income earned by individuals that do not arise from a business, interest from bank deposits, or any other form of commercial activity licensed or otherwise permitted to be undertaken in the UAE" will be exempt from taxation. Businesses involved in the "extraction of natural resources," like as oil and gas production, will also be exempted as they are subject to emirate-level taxation.
- The details regarding the Penalties, Filing deadline and other compliance procedures are awaited to be clarified by the UAE authorities.
"With the introduction of corporate tax, the UAE reaffirms its commitment to meeting international standards for tax transparency and preventing harmful tax practices," Younis Haji Al Khoori, Undersecretary of the Ministry of Finance, said in the statement.
The MOF plans to issue further information on the UAE CT regime towards the middle of the year 2022.