FAQs About Corporate Tax In UAE

    Frequently asked questions - FAQs About Corporate Tax In UAE

    A tax on the net income of a company is called corporate tax. For a country, it is a source of revenue. It is called by other names such as ‘Business Profits Tax’ or ‘Corporate Income Tax’ in different countries.

    The new corporate tax regime that will become effective from the financial year starting from June 1, 2023, or later, imposes a 9% tax rate. The new tax rate is applicable to UAE businesses earning taxable income equal to or above AED375,000. For businesses earning less than this amount, the tax rate is 0%.

    More details will come out when the legislation is finalized in the months to come.

    Yes. For businesses engaged in the extraction of natural resources, this federal-level tax rate does not apply. They are subject to Emirates-level tax rates.

    There might be other exemptions that the Ministry will announce at the time of final legislation.

    No, businesses are not required to pay UAE corporate taxes in advance.

    If foreign businesses and individuals conduct a business or trade in the UAE, then the corporate tax rate will be imposed on them.

    An individual’s salary is not subject to any corporate tax under the new tax regime. Any other income received because of employment is also not subject o this tax.

    The UAE corporate tax is not levied on incomes generated by foreign investors from interest, dividends, royalties, capital gains, and any other returns from investments.

    If a company’s financial year starts from January 1 and ends on December 31, then the new UAE corporate tax rate will apply to it from the financial year starting from January 1, 2024, to December 31, 2024.

    Yes. The new corporate tax is a federal tax rate and will be applicable in all the Emirates.
    The accounting net profit of a business as reported in the financial statements makes the taxable income. When the new UAE corporate tax law is finalized, the necessary inclusions and exclusions in the taxable income will be explained.
    Multinationals have operations in the home country as well as a presence as a subsidiary, branch, or any other registration in other countries. Large multinationals are the ones complying with certain requirements as per Pillar 2 of the OECD Base Erosion and Profit Shifting project. As per this law, large refers to a multinational corporation that has consolidated global revenues in exceess of EUR 750m (c. AED 3.15bn).

    Following incomes are not subject to the corporate tax rate:
    • Salaries of individuals
    • Other employment income of individuals
    • Personal investment in real estate
    • Capital gains, dividends, interest income from saving schemes or bank deposits, and income due to shareholding of individuals in a personal capacity
    • Qualifying intra-group transactions and reorganizations that satisfy the necessary conditions
    • Capital gains and dividends earned from qualifying shareholding by UAE businesses
    • Foreign individuals and entities with no trade or business operations in UAE in a regular manner
    • Income from capital gains, royalties, dividends, interests, and other investment returns of foreign investors
    • Free zone businesses not conducting any business in mainland UAE and complying with all regulatory requirements

    Yes, free zone businesses will have to comply with the new corporate tax regime. They have to register and file corporate tax returns under this rule. But, if these free zone businesses are not conducting any business in the mainland UAE and are complying with every relevant regulatory requirement of the free zone, then the corporate tax incentives for these free zone businesses hold.
    There is no withholding tax on domestic payments and cross-border payments in this regime.
    There is no requirement for advance or provincial corporate tax returns. The new tax regime requires businesses to file only one electronic return for corporate taxes in a financial year. Any other provisions regarding this will be announced later when the rules get finalized.
    As of now, the FTA has not announced any specific provisions for carrying forward losses from group companies or previous years.

    Accordingly, a business can use the losses carried forward from the year after the effective date of the new corporate tax rate to offset the taxable income in the financial years after that year. Similar provisions apply in the case of offsetting the taxable income of one group company with the losses from another group company.
    The transfer pricing rules as per the OECD Transfer Pricing Guidelines are applicable to UAE businesses. They have to comply with these rules.
    Since the new corporate tax will be a federal tax, the Federal Tax Authority (FTA) will administer, collect, and enforce the taxes. The Ministry of Finance will manage the international agreements and talks on taxation-related matters.
    Yes, similar to other tax laws, the FTA will impose penalties in case businesses fail to comply with the relevant corporate tax rules. The authorities will announce the detailed information on penalties and other compliance requirements later.

    The key reasons behind introducing corporate tax rate include:

    • To align with the global objective of requiring large multinationals to pay a minimum tax amount at the declared rate
    • To address all the problems, challenges, and disputes arising because of the economic digitalization across the world through adopting OECD BEPS 2.0 measures
    • To improve the country’s competitiveness in the global market by introducing a competitive corporate tax rate