UAE Corporate Tax

The United Arab Emirates (UAE) Ministry of Finance has published Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Business on December 9, 2022.

The UAE Corporate Tax Law provides the legislative basis for the implementation of a federal corporate tax (the ‘’CT Law’’) and is effective for financial years starting on or after June 1, 2023.

Corporate Tax is a form of direct tax levied on businesses’ net profit.

Scope

UAE Corporate Tax will cover all states of UAE as it’s a federal tax.

Objective

The main objective of introducing Corporate Tax is to foster UAE’s credibility as a global business hub and it will help to meet international standards for tax transparency.

Tax Period

Each tax period must be the twelve (12) month period for which the taxable person prepares financial statements.

Examples:

If a business has a financial year starting date on 1 July 2023 and ending on 30 June 2024 then the business will become subject to UAE CT from 1 July 2023.
On the other hand, if a business that has a financial year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE CT from 1 January 2024.

Who is a Taxable Person?

Article 11 describes that corporate tax shall be imposed on a taxable person which includes:

A resident person, or
A non-resident person.

Details stated in article 11(3,4,5,6) and General Rules for Determining Taxable Income are stated in article 20.

What is Taxable Income?

The taxable income for a Tax Period is the accounting net profit (or loss) of the business, after making adjustments as per Corporate Tax Law.

Applicable Rates – Article 3

Applicable rates are as below:

For small businesses and start-ups rate of tax @ 0% if taxable income is up to AED 375,000 per annum.
Rate of 9.00% if taxable income exceeds AED 375,000 per annum.

Calculation

Kindly review the example below for the liability under corporate tax:

For example, if the taxable income of a business is AED 500,000 so after a basic exemption of AED 375000 net amount subject to tax will be AED 125,000 ( AED 500,000 – AED 375,000)

UAE CT on AED 125,000 at 9% = AED 11,250.

The final amount of UAE CT payable will be reduced by any foreign taxes incurred on the relevant income.

Exempted Persons – Article 4

Article 4 describes the following are exempted from Corporate Tax.

Government Entity.
Government Controlled Entity.
Person engaged in an Extractive Business as per Article 7 of this Decree-Law.
Person engaged in a Non-Extractive Natural Resource Business as per Article 8.
Qualifying Public Benefit Entity under Article 9.
A Qualifying Investment Fund under Article 10.
A public pension or social security fund, or a private pension or social security fund that is subject to regulatory oversight of the competent authority in the State and that meets any other conditions that may be prescribed by the Minister.
A juridical person incorporated in the State that is wholly owned and controlled by an Exempt Person with few conditions.
Any other Person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister.

Articles 23 and 25 are also referred.

Income Exempted from Corporate Tax

Below income categories are exempt:

Dividends and other profit distributions from UAE incorporated or resident legal persons and received from a Participating Interest in a foreign juridical person;
Certain income including foreign exchange gains, impairment gains and capital gains;
Income from a foreign branch or permanent establishment where an election is made to claim the “Foreign Permanent Establishment” exemption; and
Income earned by non-residents from the operation or leasing of aircrafts or ships in international transportation where certain conditions are met.

Group Level Tax

A UAE group of companies can elect to form a tax group and be treated as a single taxable person so a UAE tax group will only be required to file a single tax return for the entire group subject to meeting certain conditions. These conditions include a 95% ownership requirement and neither the parent nor subsidiary can be an exempt person.
Tax losses from one group company may be used to offset the taxable income of another group company, provided certain conditions are met.

Conditions for the formation of the group have been explained in detail in Article 40.

Tax Returns – Article 53

Filing and payment of a corporate tax return must be made for each tax period within 9 months from the end of the financial period.

Transfer Pricing

The CT Law establishes rules for determining arm’s length standards on transfer pricing, as stipulated in Article 34.

Financial Statements

Article 54 deals with FS and states that The Authority may, by notice or through a decision issued by the Authority, request a Taxable Person to submit the financial statements used to determine the Taxable Income.

Record Keeping – Article 56

Records and documents related to the CT must be maintained and kept for 7 years from the end of the tax period to which they relate.

Summary

UAE companies are enjoying tax-free status, but now their profits will be taxable.
It will apply to all UAE emirates as it’s a federal tax.
Individuals will not be subject to the corporate tax of UAE on their employment income.
Foreign tax will be allowed to be credited against UAE corporate tax payable.
The Federal Tax Authority will be responsible for the administration, collection, and enforcement of UAE CT.
Records must be maintained and kept for (7) years from the end of the tax period to which they relate.
Only one corporate tax return will need to be filed per financial period.
The CT return will need to be filed electronically.

Review my blog on GCC VAT here: https://accountingblogger.com/uae-value-added-tax-vat/

Review my blog on IAS -12 Income Taxes here: https://accountingblogger.com/ias-12-income-taxes/

ABOUT THE AUTHOR

Humayun Atif | CMA, CPA, CA (FIN), MS-IT, CA Articles from Big 4, Certified Forensic Accountant (USA), Six Sigma & Oracle Certified.

Atif is passionate about Business, Tech, and the written word. He is the author of the book ‘IFRS Made Easy’. He is a tax and IFRS coach and the founder of accountingblogger.com

Blog

UAE Corporate Tax Law | Humayun Atif (CMA,CPA)

UAE Corporate Tax