On 31 January 2022, the UAE Ministry of Finance (MOF) announced the introduction of Federal Corporate Tax (UAE CT) on business profits effective for the financial years starting on or after 01 June 2023, with a standard statutory tax rate of 9% and a 0% tax rate for taxable profits up to AED 375,000.
The introduction of UAE CT is a reaffirmation of the UAE’s support of the global minimum tax proposed under “Pillar Two” of Base Erosion and Profit Shifting (BEPS).
Initial takeaways
- Effective for financial years starting from 01 June 2023
- 0% tax rate for taxable income up to AED 375,000
- 9% tax rate for taxable income exceeding AED 375,000
- Supporting Pillar Two of BEPS, different tax rate applicable to large multinationals with global turnover exceeding Euro 750 million
- UAE CT will be levied on adjusted accounting net profits
- No UAE CT on Dividends and Capital Gains earned by a UAE business from its qualifying shareholdings
- No withholding tax on domestic or cross border payments
- Free zone businesses will be subject to UAE CT but will receive tax incentives subject to conditions
- Foreign tax will be allowed as credit against the UAE CT payable
- Carryforward and utilization of losses
- Annual filing requirement
- Tax Grouping available for group companies
- No UAE CT on Individuals, on income from employment, real estate, investment in shares, or other personal income not related to a UAE trade or businesses
- No UAE CT on foreign investors who do not carry on business in the UAE
- Businesses engaged in the extraction of natural resources will be subject to Emirate level corporate taxation and not to the UAE CT
- Federal Tax authority (FTA) will be responsible for the administration, collection, and enforcement of UAE CT
What’s next?
Further information on the Corporate Tax Regime is expected by mid-2022, giving UAE businesses ample time to prepare for the introduction of the UAE CT.
We recommended the business review the following to set the ground ready for UAE CT implementation.
- Analyze CT requirements applicable to the business activities carried out. Understand what is expected to be taxable resp. exempted
- Understand compliance obligations preliminary set by the authority. Review hiring vs. outsourcing option
- Check for adequate bookkeeping. Unless included in Tax Group for CT purposes, each legal entity would be required to report taxable income separately
- Check whether business maintains accounting records following internationally accepted accounting standards. The revenue subject to CT is the accounting net profit as per financial statements (after adjustments to be specified in the UAE CT Law)
- Analyze if documentation maintained by the business as on date could be adequate to justify business profits subjected to UAE CT; remediate if necessary. Tax authorities could review books of accounts and the supporting documents
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