The United Arab Emirates (UAE) has issued on 3 October 2022 the Federal Decree-Law No. 47 of 2022 on taxation of corporations and businesses (the “Corporate Tax Law”). According to the Corporate Tax Law, businesses will become subject to the UAE corporate tax (“Corporate Tax”) from the beginning of their first financial year that starts on or after 1 June 2023. Corporate tax will be applied across all the Emirates.
The UAE Ministry of Finance confirmed that the Corporate Tax Law is an important milestone in building an integrated tax regime that supports the strategic objectives of the UAE and enhances its global economic competitiveness, as well as provides the national economy with sufficient flexibility to deal with and support international financial systems within the framework of the UAE’s established partnerships. The Ministry noted that the Corporate Tax regime has been designed in line with global best practice to both promote investment and ensure the principles included in the law are widely accepted and understood.
This article summarizes, at a high level, some of the key provisions of the Corporate Tax Law. This article does not purport to be an exhaustive summary of the law, and we encourage you to get in touch with Meysan Partners team in the UAE for any further information.
Scope of the Corporate Tax Law
Corporate Tax will apply to all taxable persons, resident or non-resident. A resident person includes legal or natural persons, and free zone persons that are either: (i) incorporated, established or recognized in the UAE; (ii) effectively managed and controlled in the UAE; or (iii) conducting a business activity in the UAE. A non-resident person is a person that either: (i) has a permanent establishment in the UAE; (ii) derives state sourced income; or (iii) otherwise has a nexus in the UAE as specified in a decision issued by the Cabinet.
Exemptions from Corporate Tax are highly targeted. Natural resource extraction activities in the country are exempt from Corporate Tax; however, they remain subject to existing local Emirate-level taxation. Other exemptions are available to organizations such as government entities, pension funds, investment funds and public benefit organizations due to their vital importance and contribution to the social fabric and economy of the UAE.
Additionally, the Corporate Tax regime provides generous relief for intra-group transfers and restructurings and allows group companies to use each other’s available tax losses.
Under the provisions of the Corporate Tax Law, the Corporate Tax will not be applied to salaries or other personal income from employment, whether it is earned from work in the government, semi-governmental or private sector. Interest and other personal income earned from bank deposits or savings programs are also not subject to Corporate Tax, as well as investment in real estate by individuals in their personal capacity.
Corporate Tax Rate
The UAE’s Corporate Tax regime will levy a standard rate of 9 percent for taxable profits exceeding AED 375,000. Profits up to and including that threshold will be taxed at a 0 percent rate to support small businesses and start-ups.
In recognition of the fundamental role of free trade zones in driving the nation’s economic transformation, the existing Free Zone entities, that are considered as qualifying Free Zone persons, will be eligible to benefit from a 0 percent Corporate Tax rate on only the qualifying income – which remains subject to Cabinet decision. In order to be considered a qualifying Free Zone person, the Free Zone person must (i) maintain adequate substance in the UAE; (ii) derives qualifying income as specified by the Cabinet; (iii) has not elected to be subject to the Corporate Tax as per the Corporate Tax Law; and (iv) complies with arm’s length principle and transfer pricing.
The Ministry of Finance will remain the ‘competent authority’ for purposes of bilateral and multilateral agreements and the international exchange of information for tax purposes. The Federal Tax Authority will be responsible for the administration, collection, and enforcement of the Corporate Tax Law.
Other key provisions are covered in the Corporate Tax Law relating to tax period, tax return, calculation of taxable income, reliefs, deductions, etc.
To know more about more details, please feel free to contact our UAE partner Zainab Aziz firstname.lastname@example.org.
A copy of the Corporate Tax Law is available in its full form on the following page on the Ministry of Finance’s website: https://mof.gov.ae/corporate-tax/
This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances, or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances, or facts. Access to this article does not form any attorney- client relationship.
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