UAE Introduces Corporate Tax from June 2023

UAE corporate tax

Objectives to Introduce CIT in UAE

Cementing the UAE’s position is a world leading hub for business and investment Meeting international standards for tax transparency and preventing harmful tax practices
Accelerating the UAE’s development and transformation to achieve its strategic object
Tax rates
0% Tax rate for taxable income upto AED 375000 to support small businesses and startups
9% Corporate rate for taxable income exceeding AED 375000

When will UAE’s corporation tax regime become effective?

The new regime of corporate tax in UAE will become effective for financial years starting on or after June 1, 2023.

In other words, for a business with a financial year starting on January 1 (calendar year), the first-year subject to corporate tax will be 2024 to be declared in 2025 via a single corporate tax return, which should be filed electronically with prior registration. Similar to other taxes in UAE, businesses will be subject to penalties for non-compliance. The penalty regime will be released later on.

Although there is plenty of time to prepare, depending on the size and business activities of the MNE, the assessment, implementation, and post-implementation of corporate tax processes and procedures is not always a walk in the park. It is recommended by tax consulting services in UAE to plan for it as early as possible. Additional guidance and clarifications will be released later.

Key Features:

• Individual will not be subject to corporate UAE tax  on income ,from employment, real estate, investment in shares or other personal income not related toa UAE trade or businesses
• No corporate income tax UAE will apply on foreign investor,. who do not carry on business. in the UAE
• Corporate tax will apply on the adjusted accounting net profit of the business.
• ·Free Zone business that meet all necessary requirements can continue to benefit from corporate tax incentives
• ·The extraction of natural resources will remain subject to Emirate level corporate taxation
• No withholding Dubai income tax will apply on domestic and cross border payments
• No corporate tax will apply on capital gains and dividends received by a UAE business. from its qualifying shareholdings
• No corporate income tax UAE will apply on qualifying intragroup transactions and restructurings
• Foreign tax credit will be allowed to be credited against UAE corporate tax payable
• Generous loss transfer and utilization rules will be available to businesses

Transfer pricing requirements:

It was anticipated by tax agent in UAE that UAE would also include the transfer pricing reporting obligations within its corporate tax regime like most neighbouring countries did.

UAE has kept it simple and straightforward. Transfer pricing rules and documentation requirements for Dubai tax will be fully aligned with OECD transfer pricing guidelines i.e., master file and local file.

More details are needed on the potential exemption of qualifying intra-group transactions. Get in touch with a tax consultant in Dubai for further assistance.

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This is in line with recent changes in international tax law according to guidelines agreed and framed by OECD in Pillar I and Pillar II approach for global minimum tax. By revising the domestic laws Dubai has taken the step in right direction to show its alignment towards international tax laws because the first step for changes in international tax laws to happen is the change in domestic tax laws. With a corporate tax at nine percent, large deduction and tax losses rules, and generous foreign tax credits, UAE is increasing its attractiveness as a compliant yet friendly tax country. In comparison, Saudi Arabia’s corporate tax rate is 20%; Egypt’s is 22.5%, Oman and Kuwait offer a 15% rate, and Qatar’s is 10%.

CA Vishal Mehta
Founder Partner International Tax
PBS Solutions

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