CORPORATE TAX FILING

Corporate Tax in the UAE: Everything You Need to Know

Background

With an aim to prevent harmful tax practise and to align with the international standards of tax transparency, the United Arab Emirates (UAE) Ministry of Finance (‘MoF’) has introduced Federal corporate tax in the UAE.

The UAE Corporate Tax (‘CT’) law will be effective for the financial years commencing on or after 01 June 2023 with a headline rate of 9%, one of the most competitive tax rates in the world. While certain clarifications are still awaited, the UAE MoF has released 158 Frequently Asked Questions which supplements the law and provide clarifications on the scope, applicability and various issues.

As a business owner, it is imperative to understand the tax laws and regulations in the country where one operates. Given the same, corporate tax would be a crucial aspect while doing business in the UAE.

In .this document, we have outlined the key features of the Corporate Tax in UAE law.

Key features of the Corporate Tax law in UAE

The Corporate Tax law in the UAE is a form of direct tax levied on the taxable income of the entity, which is arrived by making various tax adjustments to the net income or profit of corporations and other businesses of the entity.

Taxable persons

Residents in the UAE

  • Juridical Person (incorporated in UAE) including a Free Zone
  • Natural persons conducting business in UAE
  • Foreign Juridical person that are managed and controlled in UAE (POEM)
  • Any other person as may be specified.

Non – residents

  • Permanent establishment in the UAE
  • UAE sourced income
  • Nexus in the UAE (detailed clarification awaited).

Corporate Tax Rates in the UAE

The following are the applicable corporate tax rates to various entities in the UAE:-

Tax period

The tax period shall be the financial year commencing on or after 01 June 2023.

Exempt person and Incentives

Following persons are exempt from the Corporate Tax in UAE law (subject to fulfilment of certain conditions) :-

  • Government entity
  • Government controlled entity
  • Person engaged in certain extractive business
  • Person engaged in certain non-extractive natural resource business
  • Certain qualifying investment funds
  • Qualifying public benefit entity
  • Pension or social security fund
  • Any other persons as may be specified in a decision issued by the Cabinet.

Small businesses with revenue below a certain threshold can claim ‘small business relief’ and be treated as having no taxable income during the relevant tax period and may be subject to simplified compliance obligations. To claim small business relief, an election must be made to the FTA.

The revenue threshold to qualify as ‘small business relief’ has not been specified yet and clarity would be provided with time by way of Cabinet Decisions.

Applicability to Free Zones:- In order to qualify for 0% Corporate Tax rate, Qualifying Free Zone Person shall meet all the following conditions:-

  • Maintains adequate substance in the UAE
  • Derives Qualifying Income
  • Has not elected to be subject to Corporate Tax In UAE
  • Complies with all transfer pricing regulations
  • Meets any other conditions as may be prescribed by the MoF

Conclusion

The tax payer needs to be mindful of the following :-

  • Review their activities and assess the impact of new Corporate Tax in UAE law on their business
  • Consider readiness of their operations to manage the compliances and reporting obligations associated with the new Corporate Tax in UAE law
  • Maintain adequate documentation from Corporate Tax in UAE perspective.
Frequently Asked Questions

All entities in the UAE (except certain exempted entities) are subject to corporate tax.

Qualifying income of a qualifying free zone entity is taxed at 0%, while non-qualifying income is taxed at 9%.

Currently, no separate tax incentives exist for businesses investing in research and development in the UAE.

Apart from corporate tax, businesses must comply with VAT, Economic Substance Regulations (ESR), and Ultimate Beneficial Owner (UBO) regulations.

Businesses can obtain a license from a relevant free zone authority and meet the requirements outlined in Article 18 of the UAE Corporate Tax law.

Foreign businesses are subject to UAE corporate tax if they have a permanent establishment, earn income from UAE sources, or meet nexus conditions set by the authorities.

Penalties for non-compliance have not been prescribed yet. A cabinet decision is awaited to outline penalties and enforcement actions.

Losses from before June 1, 2023, cannot be carried forward. Losses incurred after this date can be carried forward indefinitely, with a maximum set-off limit of 75% of taxable income per year.

Businesses must file corporate tax returns online within nine months of the end of their tax period.

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- Corporate Tax Registration: $49
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