UAE Corporate Tax Application

The Ministry of Finance (MoF) announced that Federal Corporate Tax (CT) will be levied on business profits at the rate of 9%, effective from 1 June 2023. The aim of introducing CT in the UAE is to cement its position as a leading global investment and business hub and be in line with international standards for tax transparency and prevent harmful tax practices.

In this regard, MoF launched a digital Public Consultation Document on its website with the aim of consulting with the business community and relevant stakeholders to get their views and comments on Corporate Tax. The proposed draft may undergo a few revisions but not a significant change.

In this article, we brief you on the key features of the UAE Corporate Tax Regime and its applicability to natural and legal entities in the UAE.

Applicable Rates

CT will be charged on the annual taxable income of a business as follows:

  • 0%, for taxable income not exceeding AED 375,000;
  • 9%, for taxable income exceeding AED 375,000.
  • A different tax rate (not yet specified) for large multinationals that meet specific criteria set with reference to ‘Pillar two’ of the OECD Base Erosion and Profit Shifting Project.

Exempt Entities from CT include

  • The federal UAE Government and Emirate Governments and their departments.
  • 100% Government-owned UAE companies that carry out a sovereign or mandated activity listed in a cabinet decision.
  • Businesses engaged in the extraction and exploitation of UAE natural resources, for example upstream oil and gas companies.
  • Charities and other public benefit organizations listed in a cabinet decision.
  • Public and regulated private social security and retirement pension funds.

Additionally, CT will not apply to:

  • An individual’s salaried income and earnings received from the public or the private sector.
  • Interest and other income earned by an individual from bank deposits or saving schemes.
  • A foreign investor’s income earned from dividends, capital gains, interest, royalties and other investment options.
  • Investment in real estate, dividends, capital gains and other income earned by individuals from owning shares or securities in their personal capacity.

Classification of Taxabale Persons

The persons subject to corporate tax (CT), can be classified into natural persons and legal persons.

Natural Persons

UAE CT will apply to natural persons engaged in a business or commercial activity in the UAE. If the commercial activity requires a license and permit from the related authorities, the source income of the individual in UAE would be subject to CT. This includes income from sole establishments, proprietorships, and individual partners’ income from an unincorporated partnership that conducts business in the UAE.

If individuals conduct some activities in the UAE that do not require commercial license/permit, such income of individuals would not be subject to CT. To make it clear, tax will not apply on the employment income of natural persons ( in particular individuals), dividends, rental income from investment in property and other investments.

Legal Persons

Legal persons are categorized into incorporated persons such as Limited Liability Companies (LLCs), Private Shareholding Companies (PJSCs), Public Joint Stock Companies (PJSCs). These entities are established under the laws of the UAE with a distinct legal personality. If the legal persons are incorporated in the UAE, their worldwide income will be subject to CT, and if the businesses are incorporated out of the UAE, still their income would be subject to CT in the UAE.

The unincorporated persons include partnerships, joint ventures (JVs) and associations of persons (AoP) and will be treated as “transparent”. This implies that they will not be taxpayers in their own right and their net taxable income will be subject to CT in the hands of the partners or members. Contrarily, where the liability of all partners is limited such partnerships will be treated as an incorporated company in the UAE. Businesses are required to assess their status to know how their proposed treatment under CT.

Administrative and compliance

The FTA will be the institution responsible for the administration, collection and enforcement of the CT. The MoF will remain the competent authority for the exchange of information and bilateral/multilateral agreements. Businesses will need to file CT returns electronically per financial year.

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