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UAE CORPORATE TAX
In January 2022, Ministry of Finance announced that it will introduce federal Corporate tax (CT) on the net profits of businesses. The tax has become applicable either on 1 June 2023 or on 1 January 2024, depending on the financial year followed by the business. CT is applied across all the emirates.
Corporate tax is a form of direct tax levied on the net income or profit of corporations and other entities from their business. Corporate tax is governed by Federal Decree-Law No.60 of 2023 Amending Certain Provisions of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.
Businesses have become subject to UAE Corporate Tax started on or after 1 June 2023.
By introducing the CT, the UAE aims to:
- cement its position as a leading global hub for business and investment
- accelerate its development and transformation to achieve its strategic objectives
- reaffirm its commitment to meeting international standards for tax transparency and preventing harmful tax practices.
CT will apply to:
- all businesses and individuals conducting business activities under a commercial licence in the UAE
- free zone businesses (The UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business set up in the UAE’s mainland.)
- Foreign entities and individuals only if they conduct a trade or business in the UAE in an ongoing or regular manner
- Banking operations
- Businesses engaged in real estate management, construction, development, agency and brokerage activities.
Below are the rules regarding exemptions from the corporate tax.
- Businesses engaged in the extraction of natural resources are exempt from CT as these businesses will remain subject to the current Emirate level corporate taxation.
- Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from CT.
- Qualifying intra-group transactions and reorganizations will not be subject to CT, provided the necessary conditions are met.
Additionally, CT will not apply to:
- an individual earnings salary and other employment income, whether received from the public or the private sector
- interest and other income earned by an individual from bank deposits or saving schemes
- a foreign investor’s income earned from dividends, capital gains, interest, royalties and other investment returns
- investment in real estate by individuals in their personal capacity
- dividends, capital gains and other income earned by individuals from owning shares or other securities in their personal capacity.
As per Ministry of Finance, CT rates are:
- 0 per cent for taxable income up to AED 375,000
- 9 per cent for taxable income above AED 375,000 and
- a different tax rate (not yet specified) for large multinationals that meet specific criteria set with reference to 'Pillar two' of the OECD Base Erosion and Profit Shifting Project.
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Frequently Asked Questions
Frequently asked questions by NRIs
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.
A competitive Corporate Tax regime based on international best practices is expected to 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.
Introducing a Corporate Tax regime also reaffirms the UAE’s commitment in meeting international standards for tax transparency and preventing harmful tax practices.
The UAE Corporate Tax regime is 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 is subject to UAE Corporate Tax 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 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).
No, Corporate Tax and VAT are two different types of taxes. Both will apply in the UAE.
UAE Corporate Tax applies to juridical persons incorporated in the UAE and to foreign juridical persons that are effectively managed and controlled in the UAE (see question 20: ‘Who is considered a Resident Person for UAE Corporate Tax purposes?’). A foreign juridical person that operates in the UAE through a Permanent Establishment or that has a taxable nexus in the UAE would also be subject to Corporate Tax (see Section M “Foreign persons”).
Natural persons will be subject to Corporate Tax only if they are engaged in a Business or Business Activity in the UAE, either directly or through an Unincorporated Partnership or sole proprietorship. Cabinet Decision No. 49 of 2023 specifies further information on what would bring a natural person within the scope of UAE Corporate Tax.
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