Corporate Tax in The UAE

The UAE has introduce a federal corporate income tax on January 31, 2022, according to the Ministry of Finance (CIT) which will be implemented from June 1, 2023. This move is prompted by the UAE’s ambition to match international tax norms, following similar movements in neighbouring Gulf states while reducing compliance burdens for UAE enterprises and protecting small businesses and start-ups. The UAE, home to the important commercial hub Dubai, will continue to have one of the world’s lowest corporate tax rates, but the move will shift state profits away from hydrocarbons.

Framework

The anticipated CIT regime is supposed to apply to commercial, industrial, and professional activities throughout the UAE, except natural resource extraction, which is already subject to Emirate-level taxation.

Individuals who possess a business licence or permit to conduct commercial, industrial, and professional activities in the UAE will also be subject to the CIT system. This includes earnings from experienced professionals for actions performed under a freelancing licence or permit.

According to the MOF, the planned federal CIT framework will also apply to UAE financial operations.

It was also declared that corporate tax benefits now available to free zone enterprises would be maintained, provided the free zone business complied with all applicable regulatory requirements and did not conduct business in the mainland UAE. This may impact many enterprises that are currently operating in both the mainland UAE and free zones under a dual licencing regime.

Proposed Corporate Rates

The following corporate income tax rates are planned to be used:

• 0% tax on taxable income up to AED 375,000
• On taxable income over AED 375,000, the rate is 9%
• A separate rate (yet to be published) for significant multinationals with consolidated global revenues over AED 3.15 billion, under Pillar Two of the OECD Base Erosion and Profit Shifting (BEPS) initiative.

Conclusion

If you require advice on the impact of CIT on your UAE activities, you can get in touch with Consultycs. Their corporate team will assist with prospective consolidations, pre-deal preparation and assessment issues, and negotiate rigorous tax reparations and covenants in UAE transaction contracts once the CIT legislation is fully implemented.

Don’t miss to check: Business Laws and Regulations in Dubai, UAE