What you need to know about corporate tax on business profits in the UAE as of June 1, 2023

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The United Arab Emirates Ministry of Finance (MOF) recently announced the introduction of a federal corporate tax in the United Arab Emirates (the “UAE Corporate Tax”). “Corporation tax” can best be understood as a form of direct tax levied on the net income or profit of a company or business entity. It is commonly referred to as “corporate profit tax” or “corporate income tax”. The newly introduced UAE corporate tax will apply in the country from the financial year of June 1, 2023. The corporate tax law itself is expected. However, the main contributions of the new corporate tax law as declared by the MOF will be detailed in this article.

How is corporate tax applied?

UAE corporate income tax will apply to all business and commercial activities in the UAE, with the exception of natural resource extraction business activity, which would still be taxed according to emirate-specific taxation. Corporate tax will apply to “taxable income”, which is the accounting net profit of a given business after adjusting certain items (deductions), as further clarified in the UAE Corporate Tax Law . Business activities, including all business activities conducted in the UAE, under a business license or permit, including income earned under freelance permits (provided taxable income exceeds Aed 375,000) , must be included within the scope of the UAE corporate tax regime. ,

Key parameters of the new UAE Federal Companies Law:

  • Corporation tax will be applicable on taxable income above Aed 375,000. Thus, for a taxable income up to Aed 375,000, the applicable corporation tax will be 0%.

  • Corporate tax rates applicable to income above AED 375,000 include:

  • 9% for taxable income above Aed 375,000; and

  • different tax rate for large multinational companies that meet certain specific criteria.

  • The new tax regime will apply for the first time to the accounting year beginning on July 1, 2023 and ending on June 30, 2024. However, for a company whose accounting year starting on January 1, 2023 and ending on December 31 2023 will become subject to UAE corporation tax from January 1, 2024.

  • The Federal Revenue Authority (FTA), established in 2016, is the government entity responsible for the administration, collection and enforcement of the corporate tax system in the UAE. In addition, the Ministry of Finance will remain the competent authority for the purposes of international tax agreement, conventions, etc., including the exchange of information for tax purposes.

Exemption under the UAE corporate income tax regime:

  • Individual wages and employment income are tax exempt for public and private sector employees.

  • Investments made by individuals in real estate or capital gains received from personal investment made through stocks or debentures, in the form of dividends, investment returns will not be taxed as long as they are taxed. will be personal.

  • Companies registered in the UAE Free Zones will be included in the UAE corporate tax regime, however, only to the extent that they carry on business in the UAE. For business activities outside the UAE, the corporate tax exemption granted to these business entities will also continue to be honored under the new corporate tax regime.

By introducing the new corporate tax regime for the first time in the country, the UAE aims to implement international best practices by creating a leading global center for investment and business, while accelerating the country’s strategic goals for further progress. The new changes also reaffirm the country’s commitment to upholding international tax transparency standards and tackling negative tax practices.

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