Complete Introduction to Corporate Tax in UAE starting from June 2024

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Brief Introduction to Corporate Tax in UAE

The Ministry of Finance made a big announcement on January 31, 2022, that a federal corporate tax (CT) will be implemented in UAE starting from the financial year of June 2023. The United Arab Emirates is a world-leading global business hub, this move has further strengthened its position as a leading business hub, and it will also help in achieving strategic objectives of development and transformation.

The United Arab Emirates has made several changes throughout the past few years to streamline its tax system and align with best tax practices that are being followed around the globe. These initiatives helped UAE diversify its state revenues. Value Added Tax (VAT) was implemented in January 2018, and then economic substance regulations (ESR) in April 2019.

This announcement has yet again reshaped the tax landscape of the region and created a buzz in the business and tax professionals’ communities. UAE is going to be the 4rth Gulf Country to Implement the Corporate Tax System (CT).

As per the Ministry of Finance UAE, “the corporate tax system has been designed to incorporate best practices globally and minimize the compliance burden on businesses”
Although, businesses are given one and a half year to prepare for this new tax system . It is crucial to understand the whole concept of the Corporate Tax System in UAE (CT). Here we’ve covered almost everything related to CT that will help you understand the system and prepare your business.

What is Corporate Tax?

A Corporate Tax, also known as corporation tax or company tax, is a form of direct tax that applies to the net taxable income of the companies.

Corporate tax rates vary from country to country, some countries have very low corporate tax rates, called “tax havens” while some countries have very high corporate tax rates. This is a source of revenue for the state, this helps the state accelerate the various development objectives

Corporate Tax in UAE

The UAE’s authorities have announced the implementation of a Corporate Tax System (CT) effective from the financial year June 2023, it is a direct tax that will be imposed on net taxable income or profits of the businesses and corporations.

It will be applied to all of the UAE businesses except the companies involved in the extraction of natural resources (because they are subjected to the Emirate Level Corporate Taxation System already).

The Corporate Tax (CT) will only be imposed on Individuals and Foreign Companies if they conduct trade or business in the UAE on regular basis.

UAE’s Corporate Tax will be applied to all kinds of profits and net taxable incomes reported in financial statements that were prepared in accordance with acceptable standards internationally.

Main objectives of the implementation of the Corporate Tax in United Arab Emirates:

Traditionally, Gulf countries including UAE were tax-free or zero-tax countries as they have funded their governments’ needs from oil revenue but the landscape is changing rapidly, UAE and other Gulf countries are diversifying their revenue sources and decreasing their dependence on Oil.

The new Corporate Tax (CT) will help UAE diversify its revenue and decrease dependence on Oil, the money collected from the taxes will be utilized in the strategic development objectives and economic transformation

Corporate Tax Implementation Date in UAE

The announcement was made on January 31 2022 but it will become effective starting from the financial year 2023. All of those businesses which have an accounting reference dating back to December 31, will become subject to Corporate Tax (CT) from 1st January 2024.

Which businesses are liable to pay corporate tax in UAE?

All of the businesses in the UAE will be subjected to paying corporate tax if their net income or profits are taxable. Companies that are involved in the extraction of natural resources will be exempted from Corporate Tax because they will remain subject to Emirate-level taxation.

What is the Corporate Tax Rate in UAE?

The Corporate Tax will not be imposed on those businesses that have net income or profits up to AED 375,000, the Tax rate is 0%. Businesses having profits above AED 375,000, will be imposed 9% of Corporate Tax on their net income/profits.

The announcement does not clearly specify the tax rate for multi-national companies having profits but experts suggest they will be subjected to 15%.

Corporate Tax on Individuals:

Based on the details given by Ministry and authorities, the individuals will only be subject to Corporate Tax (CT) if they conduct business in UAE under a commercial license. However, the Corporate Tax will not be applied to the following income streams:

Salaries & other employment incomes
Real estate investments by individuals in a personal capacity.
Interests of any other income from saving schemes or bank deposits.

Corporate Tax on Free Zones:

All of the businesses established in Free Zones will be subject to Corporate Tax but they will continue to enjoy tax incentives that are currently being offered to Free Zones as long as they comply with the requirements i.e., no business with mainland companies.

Corporate Tax on Holding Companies

In general, Corporate Tax (CT) will be applied to holding companies but under certain conditions, their income will be tax exempted.

Holding companies may benefit from Free Zones incentives if they conduct business only with overseas entities.

Corporate Tax on Offshore Companies

The UAE has special regulations for offshore companies, they can set up in specialized economic free zones. (Ras Al Khaimah Economic Zone (RAKEZ) and Jebel Ali Free Zone (JAFZ).

The announcement and details from the Ministry do not specify if they will be subject to Corporate Tax but experts suggest that they will be treated in line with the general Free Zone entities.

Transfer Pricing

Businesses established in UAE will need to comply with the rules and regulations of transfer pricing set according to the OECF Transfer Pricing Guidelines.

Withholding Tax

No withholding tax will be applicable on any kind of domestic and cross-border payments

Administration

The authorities are yet to give any details regarding the administration of the Corporate Tax but it is expected that Corporate Tax returns will be filed electronically like VAT and ESR filings.
No clear information has been given about the supporting documents or requirements. However, based on the practices in other countries, the following documents may be required:

Financial statements.
Taxable income calculations
Schedules and worksheets of Tax depreciation.
Transfer Pricing documentation.
Related party transaction details.
Movement of provisions

UAE Corporate Tax in comparison with other countries:

The Corporate Tax rate in UAE is 9% which is the lowest in comparison with other top-tier countries around the globe, according to a survey the average statutory corporate tax rate is 23.54% worldwide. The lowest rate of corporate tax is in Asia, which is 19.62% and the highest rate of corporate tax is in Africa, which is 27.97%.

According to these stats, the Corporate Tax rate in UAE is the lowest in comparison to other countries worldwide

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Naqqash Ahmad

Hello, I’m Naqqash, Founder & CEO of Capital Plus Auditing of Accounts. I am a certified Chartered Accountant and I have more than 10 years of experience working with entrepreneurs, small and medium businesses and helping them with their operational and growth-related issues very closely over the past few years.