Corporate Tax in UAE

The UAE Ministry of Finance has announced that it will introduce a federal corporate tax on business profits effective for financial years starting on or after 1st June 2023.

What is corporate tax?

UAE’s Corporate Income Tax or Business Profits Tax is a federal direct tax levied on profits of corporations, it will be chargeable on taxable income, which is the profit reported in businesses financial statements after some exceptions and adjustments.


Corporate Tax in UAE is a form of direct tax levied on the net income or profit of corporations and other businesses. Going forward, licensees operating in UAE will be required to assess the impact of the upcoming regulations to their business and undertake the necessary compliance. On this note, the UAE Tax Authorities have already stated that non-compliance will translate to crippling penalties.

Effective date

01 June 2023

Tax rate

9%

Return filing

01 June 2024

Exempt Income

AED 375k

Corporate Tax Rates are indicated in the below table:

SR.NO.

Taxable Income/ Category

Corporate Tax Rate (%)

1.

Taxable income up to AED 375,000

0%

2.

Taxable income over and above AED 375,000

9%

3.

Large multinationals (having consolidated global revenue exceeding EURO 750 million – equivalent to AED 3.15 billion) that meet specific criteria set with reference to “Pillar Two” of the OECD Base Erosion and Profit Shifting Project

 

Different tax rate

Why is the UAE introducing taxes on corporate income?

  • Increasing the country’s status as a major commercial and investment centre
  • To accelerate the UAE’s development and transformation in order to meet its strategic goals
  • Addressing international tax transparency standards
  • Keeping harmful tax methods out of the system
  • To lessen its dependency on oil revenue

Scope of Corporate Tax in UAE

The United Arab Emirates has implemented a federal tax structure that applies to all enterprises and commercial activity throughout the emirates. Let’s look at the scope of corporate taxation given below.

  • Besides the extraction of natural resources, which is presently liable to Emirate-level taxes upto 55% and the branches of foreign banks to whom 20% tax is applicable, the planned CIT regime is designed to be applicable to all commercial, industrial, and professional businesses in the UAE.
  • Businesses that are incorporated in Free zones must meet all regulatory standards and do not operate a business with the UAE mainland.
  • Apart from businesses involved in the production of natural resources such as oil and gas and branches of foreign banks, all UAE businesses will be liable for corporate tax.
  • All operations carried out by a legal body are considered “business activities” and are subject to the corporate tax framework.

Exempt Income

  • Domestic dividends earned from UAE companies.
  • Dividends paid by foreign companies, and capital gains from the sale of shares in both UAE and foreign companies will also be exempt from CT, provided certain conditions are met.
  • Capital gains on the disposal of shares in a Free Zone Person will be exempt from CT where the Free Zone Person is a holding company and substantially all its income is derived from shareholdings in subsidiary companies that meet the participation exemption.
  • UAE companies having foreign subsidiaries can claim foreign branch profit exemption by two ways:
    • Claim a foreign tax credit for taxes paid in the foreign branch country, or
    • Elect to claim an exemption for their foreign branch profits
  • Income earned by a non-resident from operating or leasing aircraft or ships (and associated equipment) used in international transportation provided certain conditions are met.
  • Foreign businesses and individuals that do not engage in continuous or frequent business activity in the UAE
  • A DIFC- or ADGM-incorporated firm is liable to a zero tax rate for a period of 50 years from the moment the law in issue takes effect, according to DIFC and ADGM legislation.

Frequently Asked Questions – Corporate TAX

Corporate tax is a form of direct tax charged on the net income or profit of corporations and other businesses.
UAE CT will be applicable to businesses and commercial activities in the country. An exception is the extraction of natural resources, which will be under Emirate level corporate taxation.
  • 0% for taxable profit up to AED 375,000
  • 9% for taxable profit above AED 375,000
UAE CT will not apply on an individual’s salary and other employment income (whether received from the public or private sector).
Business income earned under a commercial license will be within the scope of UAE CT.
Real estate investments by individuals in their personal capacity will not be subject to UAE CT, provided the individual is not required to obtain a commercial license or permit to carry out that activity in the UAE.
Individuals does not have to pay CT on dividends, capital gains and other income earned from owning shares or other securities in their personal capacity.
UAE CT will generally apply to income earned from activities carried out under a freelance license/permit.
Foreign entities and individuals will be subject to UAE CT only if they carry out a trade or business in the UAE in an ongoing or regular manner.

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