The UAE issued Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses (the “Corporate Tax Law”). Businesses will become subject to UAE Corporate Tax (“Corporate Tax”) from the beginning of their first financial year that starts on or after 1 June 2023.
The UAE’s Corporate Tax regime will levy a standard rate of 9
percent for taxable profits exceeding AED375,000. Profits up to and including
that threshold will be taxed at a 0 percent rate to support small businesses
and start-ups.
The Ministry of Finance (the “Ministry”) confirmed the Federal
Decree-Law on Taxation of Corporations and Businesses is an important milestone
in building an integrated tax regime that supports the strategic objectives of
the UAE and enhances its global economic competitiveness, as well as provides
the national economy with sufficient flexibility to deal with and support
international financial systems within the framework of the UAE’s established
partnerships.
The Ministry noted that the Corporate Tax regime has been
designed in line with global best practice to both promote investment and
ensure the principles included in the law are widely accepted and understood.
Importantly, the principles of fairness and equity across sectors were at the
forefront of the design of the Corporate Tax regime, given the UAE’s diverse
economy and the importance of driving sustainable development. To this end, the
Ministry involved relevant stakeholders through public consultation and took
into account feedback and views in the final design of the Corporate Tax
regime.
The Ministry added that the 0 percent threshold for taxable
profits up to and including AED375,000 has been included in recognition of the
vital role of start-ups and small businesses in the UAE’s economy, and the 9
percent standard rate ensures that the Corporate Tax regime is amongst the most
competitive in the world and will strengthen the UAE’s position as a global
business and financial centre.
The Corporate Tax Law reflects the UAE’s support for the OECD
Inclusive Framework on Base Erosion and Profit Shifting in its commitments to
introducing a global minimum tax for multinationals, enhancing tax transparency
and preventing harmful tax practices.
Exemptions from Corporate Tax are highly targeted. Natural
resource extraction activities in the country are exempt from Corporate Tax;
however, they remain subject to existing local emirate-level taxation. Other
exemptions are available to organisations such as government entities, pension
funds, investment funds and public benefit organisations due to their vital
importance and contribution to the social fabric and economy of the UAE.
In recognition of the fundamental role of free trade zones in
driving the nation’s economic transformation, the existing free zone entities
will be eligible to benefit from a 0 percent Corporate Tax rate on qualifying
income.
Corporate Tax compliance and administration requirements have
been tailored to suit different categories of taxpayers, in recognition of the
diversity of businesses which will come within the scope of the new Corporate
Tax regime. Additionally, the Corporate Tax regime provides generous relief for
intra-group transfers and restructurings, and allows group companies to use
each other’s available tax losses.
Under the provisions of the Corporate Tax Law, Corporate Tax
will not be applied to salaries or other personal income from employment,
whether it is earned from work in the government, semi-governmental or private
sector. Interest and other personal income earned from bank deposits or savings
programmes are also not subject to Corporate Tax, as well as investment in real
estate by individuals in their personal capacity.
The Ministry will remain the ‘competent authority’ for purposes
of bilateral and multilateral agreements and the international exchange of
information for tax purposes. The Federal Tax Authority will be responsible for
the administration, collection, and enforcement of the Corporate Tax Law.
More information on Corporate Tax in the UAE, is available at
the Corporate Tax page on the Ministry’s website: https://mof.gov.ae/corporate-tax/
A copy of the Corporate Tax Law is available in its full form on
the following page on the Ministry of Finance’s website: https://mof.gov.ae/corporate-tax-faq/
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