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UAE Corporate Tax-2023

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UAE Corporate Tax 2023-An overview

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UAE Corporate Tax 2023

UAE Corporate Tax 2023

UAE Corporate Tax 2023 – In the UAE, the introduction of corporate tax has necessitated major changes in the tax and compliance requirements of most UAE firms. Our dedicated tax team at Saif Chartered Accountants can help you with your corporate tax needs.


Saif Chartered Accountants can assist you with the UAE Corporate Tax, which has been adopted by the UAE. Our team of experts will make sure your firm is prepared for these changes.


The United Arab Emirates has introduced a Corporate tax on business profits. The change will take effect for financial years beginning on or after June 2023. UAE businesses must adhere to the OECD Transfer Pricing Guidelines in reference to related-party transactions.


UAE Corporate Tax effective date
for financial years starting on or after 1 June 2013.

UAE CT : Quick contact

Tax Exemptions -UAE Corporate Tax

The following kinds of income will be exempt from federal income tax:
1. Dividend income earned by UAE company
2. Profits from group reorganization
3. Profits from Intra-group transactions
4. Capital gains

There will be no UAE withholding tax on domestic and cross-border payments. Considering the exempt income scheme it can be anticipated that the Law shall include a participation exemption or similar principles commonly seen in international markets and businesses would need to evaluate if they will be able to meet the prescribed conditions (if any) to avail the exempt income scheme. (more)


Tax Rates: Business Income

a. 9% headline corporate tax rate for taxable income exceeding AED 375,000.
b. effective tax rate for taxable income up to AED 375,000 to support small businesses and startups.

The impact of Corporate Tax on UAE businesses

Each registered business would have to register for the Corporate tax, and each year, they would be required to pay 9% of their adjusted taxable profits above the exemption threshold of Dh375,000. The CT would be their short-term liability, which would adversely affect their working capital. Businesses would consider this impact when preparing budgets for the respective period and plan accordingly.


UAE Tax Calculator (CT)

Example of business tax/UAE Corporate Tax Rates calculation in UAE

Details Amount
Net Profit 500,000
Less : All deduction** 25,000
Net Income 475,000
Less : Exempt Amount 375,000
Taxable Income 100,000
Corporate Tax @9% on ----- 9000

Key Features: UAE Corporate Income Tax

✓ Individuals will not be subject to corporate tax on income from employment, real estate, investment in shares or other personal income
✓ No corporate tax/business taxes will apply on foreign investors who dont 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 the necessary requirements, can continue to benefit from corporate tax incentives.
✓ The extraction of natural resources will remain subject to Emirates level corporate taxation.
✓ No withholding 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 tax will apply on qualifying intragroup transactions and restructurings.
✓ Foreign tax will be allowed to be credited against UAE corporate tax payable.


Frequently Asked Questions - UAE Corporate Tax Audit

Overview
What is Corporate Tax?

Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses. Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.

Why is the UAE introducing CT?

A competitive CT regime based on international best practices will cement the UAE’s position as a leading global hub for business and investment, and accelerate the UAE’s development and transformation to achieve its strategic objectives


Introducing a CT regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices

When will the UAE CT regime become effective?

he UAE CT regime will become effective for financial years starting on or after 1 June 2023

Examples:

  • A business that has a financial year starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE CT from 1 July 2023 (which is the beginning of the first financial year that starts on or after 1 June 2023)
  • A business that has a (calendar year) financial year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE CT from 1 January 2024 (which is the beginning of the first financial year that starts on or after 1 June 2023)
    • Will UAE CT be applicable to businesses in each Emirate?

    The UAE CT is a Federal tax and will therefore apply across all Emirates

    Scope and rate
    Who will be subject to UAE CT?

    UAE CT will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation

    How do you determine whether a legal entity has a “business” that will be within the scope of UAE CT

    All activities undertaken by a legal entity will be deemed “business activities” and hence be within the scope of UAE CT

    How do you determine whether an individual has a “business” that will be within the scope of UAE CT?

    This would generally be done by reference to the individual having (or being required to obtain) a business licence or permit to carry out the relevant commercial, industrial and/or professional activity in the UAE

    What will the UAE CT rates be?

    The CT rates are:


  • 0% for taxable income up to AED 375,000;
  • 9% for taxable income above AED 375,000; and
  • a different tax rate for large multinationals that meet specific criteria set with reference to 'Pillar Two' of the OECD Base Erosion and Profit Shifting project
    • What is meant by “large” multinationals?

    A multinational corporation is a corporation that operates in its home country, as well as in other countries through a foreign subsidiary, branch or other form of presence / registration. Merely earning income from outside its home country without a foreign presence or registration would not make a business a multinational corporation


    In the context of the global minimum effective tax rate as proposed under 'Pillar Two' of the OECD Base Erosion and Profit Shifting project,” large” refers to a multinational corporation that has consolidated global revenues in excess of EUR 750m (c. AED 3.15 bn)

    Will an individual’s salary income be subject to UAE CT?

    UAE CT will not apply on an individual’s salary and other employment income (whether received from the public or private sector)

    Will an individual who has a commercial license to carry out business in the UAE be subject to UAE CT

    Business income earned under a commercial license will be within the scope of UAE CT

    Will the income earned by a freelance professional be subject to UAE CT?

    UAE CT will generally apply to income earned from activities carried out under a freelance license / permit, albeit no CT will be payable unless the annual net income of the freelance professional exceeds AED 375,000.

    Will income earned by an individual from bank deposits be subject to UAE CT?

    Interest and other income earned by an individual from bank deposits or saving schemes will not be subject to UAE CT

    If a business has earned taxable income of AED 400,000 in a given financial year, what will be the UAE CT amount payable?

    The CT liability will be calculated as follows:

  • Taxable income of AED 0 - AED 375,000 at 0% = AED 0
  • Portion of taxable income exceeding AED 375,000 (i.e. AED 400,000 - AED 375,000 = AED 25,000) at 9% = AED 2,250
  • The UAE CT liability for the year will be AED 0 + AED 2,250 = AED 2,250
    • The final amount of UAE CT payable will be reduced by any foreign taxes incurred on the relevant income (see below under ‘Tax Credits’ section)

    Free zones
    Will a free zone business be subject to UAE CT?

    Free zone businesses will be subject to UAE CT, but the UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE

    Will a free zone business be required to register and file a CT return?

    A business established in a free zone will be required to register and file a CT return

    Will the UAE CT treatment be different for a free zone business established in a financial free zone?

    The UAE CT treatment that will apply to businesses in free zones will be the same across all free zones

    Also, Check : Value Added Tax – UAE VAT : VAT Consultant in Dubai, UAE | Corporate income tax rate: tax rates | tax software

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