The UAE issued Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the “Corporate Tax Law”). From 1 June 2023, businesses will be subject to UAE Corporate Tax (“Corporate Tax”). The UAE’s corporate tax regime imposes a standard rate of 9 percent on taxable profits exceeding AED375,000. To support small businesses and start-ups, profits up to and including that threshold will be taxed at 0 percent.
According to the Ministry of Finance (the “Ministry”), the Federal Decree-Law on Corporations and Businesses is a critical step towards establishing an integrated tax system that supports the UAE’s strategic objectives and improves its global competitiveness. Moreover, the UAE’s established partnerships provide the national economy with sufficient flexibility to deal with and support international financial systems.
The Ministry added that the 0 percent threshold for taxable profits up to and including AED375,000 has been included in recognition of the vital role of start-ups and small businesses in the UAE’s economy, and the 9 percent standard rate ensures that the Corporate Tax regime is amongst the most competitive in the world and will strengthen the UAE’s position as a global business and financial centre.
Corporate tax exemptions are highly targeted. In the country, natural resource extraction activities are exempt from Corporate Tax, but remain subject to local emirate taxes. Organizations such as government entities, pension funds, investment funds and public benefit organizations also qualify for exemptions due to their vital importance and contribution to UAE society and economy.
In recognition of the fundamental role of free trade zones in driving the nation’s economic transformation, existing free zone entities will be eligible to benefit from a 0 percent Corporate Tax rate on qualifying income. As a result of the diversity of businesses that will fall within the scope of the upcoming Corporate Tax regime, compliance and administration requirements have been tailored to fit different categories of taxpayers. Furthermore, the Corporate Tax regime provides generous relief for intra-group transfers and restructurings, and allows group companies to utilize each other’s tax losses.
Under the provisions of the Corporate Tax Law, Corporate Tax will not be applied to salaries or other personal income from employment, whether it is earned from work in the government, semi-governmental or private sector. Interest and other personal income earned from bank deposits or savings programmes are also not subject to Corporate Tax. The same is true for individuals investing in real estate on a purely individual basis.
In terms of bilateral and multilateral agreements and the international exchange of information for tax purposes, the Ministry remains the ‘competent authority’. It will be the Federal Tax Authority’s responsibility to administer, collect, and enforce the Corporate Tax Law. More information on Corporate Tax in the UAE, is available at the Corporate Tax page on the Ministry’s website. A copy of the Corporate Tax Law is available in its full form on the following page on the Ministry of Finance’s website.