The recent introduction of federal corporate tax all across the country is part of the blizzard of reformations, the UAE brought on turning 50 last year. The news had the hearts of hundreds of thousands of business persons worldwide skip a beat, including those who have been looking to start a business in Dubai for a long time. Now let’s find out, what is the corporate tax law in UAE. Also, read on to learn, what is corporate tax and how it is going to be implemented in UAE?
What is Corporate Tax?
Collected by the government as a source of income, Corporate Tax (CT) or “Corporate Income Tax (CIT) is a type of direct tax imposed on the net income or profit from the business of companies of all sizes and types as per the law of the country they are registered in.
Corporate tax rates differ from country to country, with some countries infamous for being tax havens due to low rates.
Corporate tax in UAE
The standard UAE corporate tax rate has been declared 9% (applicable only when a certain threshold is crossed) which is the lowest in the GCC region with the exception of Bahrain. The UAE CIT system has been structured to incorporate best practices globally and slash the compliance burden on businesses.
In some jurisdictions, the corporate tax in Dubai is also referred to as “Business Profits Tax”. The taxes are levied on a company’s taxable income such as revenue minus the cost of goods sold (COGS), general & administrative (G&A) expenses, selling & marketing, research & development, depreciation and other operating costs.
Corporate tax period in UAE
On 31 January 2022, the Ministry of Finance (MoF) stunned the world by making the sliding-door announcement that a new federal corporate tax (CT) system will be implemented in the UAE, coming into force in financial/fiscal years beginning on or after 1 June 2023.
What will be the corporate tax rates?
The federal UAE corporate tax rate is proposed at a flat 9% which is levied on the UAE-registered businesses’ taxable income exceeding AED 375,000 ($102,000) to support small businesses and start-ups.
Who will come under corporate tax implementation?
It is currently unclear when the UAE CT law and more instructions will be announced. Some of the expected corporates could be:
- Free Zones
- Holding Companies
- Offshore Companies
- Branches of Foreign Entities
- Government Entities
What was the need of bringing the corporate tax to the UAE?
Nothing else can be blamed for the introduction of corporate income tax UAE, except for the country’s own intention.
The aim was to streamline the tax system and bring it in line with the global tax standards. Not to mention, the diversification of income sources! The back-to-back reforms in the business climate done by the country in the last few years including the implementation of Value Added Tax (VAT) in January 2018, the introduction of economic substance rules (ESR) along with Country-by-Country Reporting (CbCR) regulations in April 2019 is a dead giveaway that the UAE is working best to ensure its position as one of the world’s most business-friendly countries.
Specifics of Corporate Tax Implementation
Level: Corporate tax is levied at the Federal level. The emirate level corporate tax (i.e., up to 55%) is applied to only foreign oil companies and branches of foreign banks.
From when: Will be applicable for financial years beginning on or after 1 June 2023.
Forwhom: All UAE businesses and commercial activities (including sole establishments and freelancers) are subject to pay the corporate tax.
Exempted entities: The corporate income tax in the UAE will not apply to personal income from employment, real estate and other investments, or to income earned from a business licensed outside the UAE, relieved the Finance Ministry. Companies involved in the extraction of natural resources are excluded as well and will continue to pay their corporate tax as usual (according to the Emirate level corporate taxation system).
Corporate tax incentives: Companies within the UAE’s many free zones have long enjoyed zero taxes and full foreign ownership, among other benefits. They still can continue to benefit from corporate tax incentives as long as they “meet all mandatory requirements.
Rates & threshold: 0% for taxable income up to AED 375,000 & 9% for taxable income more than AED 375,000. Higher rate for large international multi-nationals (with global revenues above AED3.15 billion).
Taxable income: Will be the accounting net profit of a business (determined in accordance with IAS), after making adjustments for certain items to be specified under the UAE CIT law in due course.
Tax grouping: The tax grouping and group relief provisions are possible. UAE Groups should be able to submit unified tax filings. Offsetting tax losses among groups might be permissible.
Exempted income: Dividends and capital gains earned by a UAE business from its “qualifying shareholdings” and “qualifying” intra-group transactions will be exempted from corporate tax.
Offset of losses: Businesses are qualified for an offset of losses from taxable income in subsequent financial periods.
Foreign corporate tax: Paid on the UAE taxable income will be allowed as a tax credit against the UAE corporate tax liability.
Corporate Tax Law in UAE: soon going to be officially legal in UAE by 1 june 2023. Also, some of the major announcements are yet to come.
How can Adam Global Accounting Services help You?
With the implementation of a 9% federal corporate tax in Dubai on business profits equal to or more than AED 375,000 in the UAE, a once-called-tax-free country, the entities operating in or from the UAE are required to gird up themselves before the next financial year commences.
Probably you established or were planning to set up your company in Dubai because UAE is known to be one of the countries that are considered tax havens/no tax either due to low tax rates or no taxes at all.
Maybe the implementation of VAT in 2018 didn’t disturb the flow of your business that much, as this tax, in all cases, is ultimately (and visibly) borne by the buyers of the good or service. However, corporate tax is payable by the businesses. Although, the burden still passes down to stockholders, shareholders and unintuitively, to workers, investors and end consumers, the headache to plan taxes and stay compliant with the law remains yours as a business owner.
Paying your corporate taxes on time can save you from coughing up hefty fines. Pretty straightforward!
But what’s tricky is to plan your taxes effectively and reduce them as much as possible. And we can assist you in both planning your corporate tax and lowering it down by various deductions, government subsidies and tax loopholes.
You snooze, you lose!
Been in discussion for several years, corporation tax in the UAE is finally going to be implemented next year from 01/06/2023. Adam Global Accounting Services Dubai advises you to be tax prepared first thing! 1st June 2023 is not too far. The clock is ticking, so be sure to complete your corporate tax-related tasks efficiently, so you don’t have to worry about it at the 11th hour when all the qualified and experienced corporate tax consultants in Dubai, UAE would be running off their feet planning other businesses’ taxes.
What must be done should be done. Your tax preparation today can set the scene for a worry-free tomorrow. Like most businesses, you can also outsource your corporate tax planning and compliance services in Dubai to us. It will not only save you time and money, but also you will be able to sit back knowing that your taxes are being planned by an expert in the field. Schedule your first-time free consultation with our UAE corporate tax experts to know how they can help you prepare and plan for corporate tax.
Why Corporate tax in Dubai?
A competitive CT regime based on international best practices will cement the UAE’s position as a leading global hub for business and investment and accelerate the UAE’s development and transformation to achieve its strategic objectives.
The UAE is a member of the OECD (Organisation for Economic Co-operation and Development) inclusive Framework on Base Erosion and Profit Shifting (BEPS) and hence committed to meeting the international standards for tax transparency and preventing harmful tax practices.
Introducing a CT regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices.
What is the impact on Foreign Direct Investment in UAE?
Corporate taxes can have an impact on both the quality and amount of foreign direct investment (FDI). If taxes diminish the amount to which investment contributes to the corporate tax base and the capital intensity of production, the quality of FDI may decrease.
What is the scope of the UAE corporate tax announced recently?
Soon-to-be-implemented corporate tax comes under the federal tax system and applies to every single business entity operating within the UAE. The scope of the UAE corporate tax is limited to these companies except corporations engaged in natural resources extraction activities. The UAE Federal Tax Law will now apply to the international banking industry, which was previously governed by the Emirate-level bank tax decree.
Why is it important to understand the newly introduced corporate tax law?
The corporate tax law and details of the regulation are yet to be elaborated. It’s of utmost importance that companies review the Corporate Tax Law & Regulations up to the hilt once they are issued. In the absence of thorough knowledge of the new CIT Law, it would be difficult to understand exactly how the exemptions will apply and how free zone companies will be regarded. Entities may require legal restructuring in order to be able to optimise their corporate tax position.
What will be the role of the Ministry of Finance?
The Ministry of Finance will remain the ‘competent authority’ for purposes of bilateral/multilateral agreements and the international exchange of information for tax purposes.
Will a foreign company or individual be subject to UAE CT?
If a foreign company or individual is engaged in a business in the UAE in an ongoing or regular manner, they will be subject to UAE CT.