9% corporate tax to be introduced on business profits in the UAE

Corporate Tax On Business Profits In The UAE

Corporate Tax Rate On Business Profits In The UAE From the financial year starting June 1, 2023, and companies will have a new corporate taxation structure. The Ministry of Finance announced the new taxation regime on January 31, 2022. The Ministry has not issued the legislation yet, and all details will come when it is finalized.

According to the announcement, businesses with taxable income exceeding AED375,000.0 will be paying 9% federal tax. For businesses with taxable income less than this amount, the taxation rate will be 0%. This corporate tax will apply to ‘the adjusted accounting net profit’ of a company, starting from January 1, 2023.

The only exception to this rule will be businesses engaged in the extraction of natural resources. These are subject to different corporate tax rates at the Emirates level. For other businesses, whatever profits they report in financial statements prepared as per the applicable standards and rules, they will have to pay tax.

Individuals earning income from employment, equity investments, and real estate

Individual’s personal income earned from a source unrelated to UAE business or trade

Foreign investors with no business in UAE

Domestic and cross-border payments are free from withholding tax

Capital gains and dividends received by a UAE company from its qualifying shareholdings

Qualifying intragroup transactions and restructurings

Free zone businesses in full compliance with relevant free zone requirements and no business in mainland UAE

With this decision, the country will no longer remain a tax-free hub for businesses, except in the free zones. The new regime does not plan to put the burden of taxes on small businesses and startups. It is a competitive rate based on best practices from across the globe with little to no taxation compliance burden.

The decision aims to commit to the initiatives of improvement in tax transparency and elimination of damaging tax practices. The new corporate tax regime displays the country’s support for the global minimum tax rate rule. Also, the country can fight the challenges resulting from BEPS and economic digitalization.

The new tax will be a source of revenue for the government. At the federal level, the country will have a new source of income to support the economy. The corporate sector will have to wait for more details, but they have more than a year to prepare for the new tax regime.