Assumptions of Corporate Tax in UAE
On January 31st, 2022, the Finance Ministry of the United Arab Emirates announced its plan to implement a federal corporate tax law in the country for the first time. The CT Law will be introduced with its executive regulations, and corporate tax will be governed by these laws once they are issued. The new law is expected to take effect on or after June 1st, 2023, and will apply to profits earned during financial years starting on or after that date. The UAE Federal Tax Authority will be responsible for administering and collecting corporate tax, in accordance with the laws and regulations set forth by the Ministry.
The Extent of Corporate Tax Implementation in UAE
The proposed corporate income tax (CIT) regime is expected to apply to all types of business activities in the UAE, except for natural resource extraction, which is already subject to Emirate-level taxation. It will also apply to individuals who hold a business license or permit to carry out commercial, industrial, or professional activities in the UAE, including freelance professionals.
The Ministry of Finance (MOF) has stated that the proposed federal CIT regime will also apply to banking operations in the UAE, except for foreign bank branches that are already subject to a CIT regime at the Emirate level.
Free zone businesses will continue to receive corporate tax incentives, as long as they comply with all applicable regulations. However, they will have to fulfill certain obligations under the CIT regime, such as registering and filing a CIT return. The MOF will provide more information on CIT exemptions and exclusions at a later time.
PROPOSED RATES
- Taxable income up to AE$375,000 (around US$102,095) will not be subject to any tax in the UAE.
- Taxable income up to AE$375,000 (around US$102,095) will not be subject to any tax in the UAE.
- Multinational companies that satisfy certain requirements based on the Global Anti-Base Erosion Model Rules (Pillar Two) of the OECD Base Erosion and Profit Shifting project will be subject to a distinct tax rate.
Income Exempted From CIT
- Income derived from the extraction of natural resources.
- Personal salary or employment income, unless earned from freelance activities.
- Interest and other income obtained from bank deposits or savings plans.
- Dividends and capital gains earned by a UAE company from its qualifying shareholdings.
- Qualified intra-group transactions and reorganizations under certain conditions.
- Foreign individuals and companies who do not engage in regular business operations in the UAE.
- Personal dividends, capital gains, and other income obtained from securities.
Taxation of Company Profits - Corporate Taxes in UAE
Corporate tax in the UAE is currently determined at the regional level, with each Emirate issuing its own Tax Decree to impose corporate income tax. Certain Emirates have also introduced specific Banking Tax Decrees, which levy CIT on foreign bank branches operating in the respective Emirate. CIT is assessed on a progressive rate system under the Tax Decrees, with rates reaching up to 55%. Foreign bank branches, however, are subject to a fixed rate of 20% CIT. Currently, CIT is only applicable to foreign oil companies involved in upstream petroleum activities and foreign bank branches in practice.
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