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Corporate Tax in the UAE

Corporate Tax Law in United Arab Emirates

In a groundbreaking move that commenced in June 2023, the United Arab Emirates introduced Federal Decree-Law No. 47, titled "On Corporate and Business Taxation" or the "Corporate Tax Law."

This landmark legislation heralds a new era for the nation's economic framework, and will bring about significant changes and opportunities for businesses and corporations alike. The UAE has always demonstrated its firm commitment to fostering a robust and modern economy, positioning itself at the forefront of the global business landscape. The implementation of the Corporate Tax Law will have a significant impact on the trajectory of businesses, investments, and economic growth in the region for years to come.

The UAE has long been celebrated for its enticingly low tax rates, with citizens enjoying the privilege of tax-free income, and most companies exempt from corporate tax. However, in recent years, this dynamic nation has undergone rapid economic development. The UAE's progressive vision and dedication to embracing cutting-edge technologies have further strengthened its position as a hub for innovation and a gateway for global trade and commerce. This visionary roadmap places emphasis on achieving sustainable economic growth while reducing reliance on traditional sectors like oil and gas. Instead, the UAE is focused on fostering a more diversified and resilient economy and focusing on sectors such as tourism, manufacturing, technology, and financial services.

Value-added tax in United Arab Emirates

In a significant fiscal move in 2018, the UAE implemented a 5% value-added tax (VAT). VAT has provided the UAE with a new source of income to continue to provide high-quality public services. It also plays a pivotal role in advancing the government’s vision of reducing reliance on oil and other hydrocarbons as a primary revenue stream. These changes reflect the UAE’s commitment to fostering a diversified and sustainable economic landscape for the future. In January 2022, the UAE announced plans for a 9% corporate tax, which would come into effect beginning June 2023. These measures signify the country's commitment to enhancing its business environment, attracting investments, and strengthening its economic infrastructure, all while positioning itself as a competitive player on the global stage.

Corporate tax rates in UAE

Until recently, profit tax in the UAE was levied only on foreign bank branches and insurance companies, taxed at a rate of 20%. Meanwhile, companies involved in oil and gas extraction were subject to a corporate tax rate of 55%. Effective from June 1, 2023, the profit tax has been expanded to include medium and large businesses. As a result, legal entities registered in the UAE or those effectively managed and controlled from the UAE, as well as foreign companies with a permanent establishment in the Emirates, are now obligated to comply with tax payment requirements. Additionally, taxpayers will be liable to pay taxes on their global income. Nevertheless, the law grants benefits, including a zero tax rate, for incomes up to a specific threshold. Presently, small businesses and startups enjoy exemptions from tax obligations. Additionally, companies registered within free economic zones that exclusively conduct business outside the Emirates also receive exemptions. However, companies operating in free economic zones and engaged in business with mainland companies will be required to pay corporate tax on income generated from such operations.

The corporate tax rate varies based on the company's profit and is structured as follows:
  • 0% for profits up to AED 375,000 or $102,000 per year
  • 9% for profits from AED 375,000 or $102,000 per year.

Additionally, large international companies generating profits surpassing AED 3 billion or EUR 750 million will be subject to a 15% tax rate, after negotiations at the Organisation for Economic Co-Operation and Development (OECD). In October 2021, more than 130 member jurisdictions agreed to an outline for new tax rules. The agreement sets out a global minimum tax of 15%, which would increase taxes on companies with earnings in low-tax jurisdictions. h.

Who is the subject to corporate tax in UAE?

According to the law, all companies are mandated to register to pay corporate tax and obtain a corresponding corporate tax registration number to ensure full compliance. This process ensures adherence to taxation regulations and facilitates proper record-keeping for tax purposes. By following this essential action, businesses demonstrate their commitment to fulfilling their tax responsibilities and maintaining accurate financial records. Companies are obligated to submit a tax return annually, even if they did not conduct any business during the reporting period. This requirement applies to companies registered in the Emirates' free zones. Additionally, businesses must maintain their invoices and other accounting documents for a duration of 7 years as part of regulatory compliance.

For companies registered for VAT, both VAT and corporate tax payments are mandatory. If a company is not registered for VAT, it is still required to pay corporate tax.

With the introduction of new regulations, most companies must now carefully strategize their tax payments in accordance with their fiscal year, spanning 12 months. This adjustment is essential to ensure compliance and seamless financial planning within the revised framework.

Tax period in UAE

The law is applicable to tax periods beginning from June 1, 2023, or later, which means companies are not required to pay taxes on income earned before January 1, 2024. For example, consider a business with a fiscal year starting on July 1, 2023, and ending on June 30, 2024; it will be liable for profit tax in the UAE from July 1, 2023, as it marks the initiation of the first fiscal year commencing on or after June 1. Furthermore, a business with a fiscal year starting on January 1, 2023, and ending on December 31, 2023, will become subject to corporate tax in the UAE from January 1, 2024, since it aligns with the parameters set for fiscal years starting on or after June 1. Companies must submit their tax returns and payments within 9 months after the conclusion of the tax period, or by any other date specified by the tax authority.

Benefits of new corporate tax legislation in UAE

The implementation of corporate tax in the UAE is expected to stimulate investments in infrastructure and foster growth in various sectors of the economy. The government is committed to reinforcing the country's status as a prominent global hub for business and investment, and as part of this commitment, the UAE has no plans to implement personal income tax or capital gains tax on dividends. This strategic approach exemplifies the country’s unwavering dedication to fortifying its economic strength and maintaining its appeal as an investment-friendly destination. Additionally, the new tax measures in the UAE emphasizes the nation's dedication to enhancing transparency and aligning with international taxation standards. These steps are pivotal in attracting foreign investments and steering the UAE's economy towards a more sustainable and diversified path.

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