The Ministry of Finance has announced that the UAE will introduce a federal corporation tax on business profits effective from 1st June 2023 with Corporation Tax on taxable income up to AED 375,000 will be 0% tax rate to support small and start up business.
The corporation tax has been designed to incorporate best practices across the globe. Corporation tax will be payable on the business profits as reported in their financial statements and as per the accounting standards.
There won’t be any corporation tax on personal income from employment, Real Estate and other investments. It also excludes any income earned by individuals from licensed commercial activity or otherwise permitted to be undertaken in the UAE.
Younis Haji Al Khoori, undersecretary of Ministry of Finance, quoted "As a leading jurisdiction for innovation and investment, the UAE plays a pivotal role in helping businesses grow locally and globally. The certainty of a competitive and best in class corporate tax regime, together with the UAE’s extensive double tax treaty network, will cement the UAE’s position as a world-leading hub for business and investment".
“With the introduction of corporation tax, UAE reiterates its commitment to meeting international standards for tax transparency. The regime will overlay the way for the UAE to address the challenges arising from the digitalisation of the global economy and the other remaining concerns, and execute its support for the introduction of a global minimum tax rate by applying a different corporate tax rate to large multinationals that meet specific criteria set with reference to the above initiative."
A UAE business will exempt from paying corporation tax on capital gains and dividends received from shareholding for having an international headquarter in UAE. Also, foreign taxes will be credited against corporation tax paid in UAE.
The UAE corporation tax will allow UAE groups to be taxed as single entity or to apply group relief in respect of losses & intragroup transaction.
The corporate tax will apply to all businesses and commercial activities, except for the extraction of natural resources which will remain subject to Emirate level corporate taxation.
With a standard statutory tax rate of 9% and a 0% tax rate for taxable profits up to Dh 375,000 to support small businesses and start-ups, the UAE corporate tax regime will be amongst the most competitive in the world.
UAE regime will continue to honour the corporation tax incentives currently being offered to free zone business with mainland as UAE. UAE will not impose taxes on domestic and cross border payments or foreign investors who do not carry on business in the UAE.
Business will only need to file corporation tax return once a financial year. This will avoid compliance burden to minimum for businesses that prepares & maintains acceptable financial reports.
The Businesses will be given enough of time to prepare and adopt introduction of corporation tax. The UAE Ministry of Finance plans to announce further information on UAE taxes towards the middle of the year to help business to understand and comply accordingly.