UAE Corporate Tax: What You Need to Know

The deadline for the official introduction of the UAE corporate tax is fast approaching and many companies or entities might still be confused about how they will be impacted.  To make sure you have as much information as possible, we have put together this short guide to help you through what changes are taking place and how to make sure you are prepared.

The UAE Corporate Tax Introduction

Published on 9^th December 2022, the Federal Decree Law No,47 – Taxation of Corporations and Businesses laid out that all taxable persons, both natural and legal, will be subject to a new Corporate Tax for all periods beginning on, or after, 1^st June 2023.  To ensure that the changes could be easily understood and followed by businesses and foreign investors, the UAE’s first federal corporate tax framework has a low compliance burden and two statutory tax rates of 0% and 9%.

Corporate Tax Around the World

Corporate tax, sometimes referred to as a corporation tax, capital tax or company tax is a ‘direct tax imposed on the income or capital of corporations or analogous legal entities’.  Individually set by countries, traditionally the tax is applied to:

• Companies incorporated in the country
• Companies who generate an income from that country
• Foreign companies who have a permanent establishment in the country

One of the driving forces behind the UAE’s decision to initiate the introduction of corporation tax was the idea that it would help to diversify the federal economy with a sustainable income source.   It also brings the country more in line with international standards as there are few countries with developed economies that don’t implement a corporate tax.  What will continue to set the UAE apart is its choice to stick with a comparatively low rate at 9%.  “The worldwide average statutory corporate income tax rate, measured across 180 jurisdictions, is 23.37 percent. When weighted by GDP, the average statutory rate is 25.43 percent.”  By keeping the UAE corporate tax programme simple and affordable, the government is able to generate revenue whilst still attracting investment into the country from entities looking for a lower tax threshold, amongst other key benefits that the UAE offers.

The Key Things You Need to Know

Ensuring that you are fully aware of the obligations and compliance facets that apply to your company is paramount.  Obviously EER can assist you with determining which aspects are relevant to your organisation, what steps need to be taken and how to make sure you are ready for the deadline and can avoid any penalties or fines.  But we also wanted to give you an overview of the law and some key highlights to understand.

The Scope: The UAE corporate tax applies to all businesses and persons including individuals, sole proprietorships, unincorporated partnerships, foundations and civil companies.  UAE resident businesses will be subject to the tax on their worldwide income, with reliefs available to prevent double taxation.  Non-residents will be subject to the tax on their income sourced from within the UAE.  Freezone entities maybe entitled to a tax rate of 0% in certain circumstances, but will need to await qualification publications.

The Figures: The starting point for taxable income will be the accounting profit with further adjustments for calculating the taxable profits.

The Registration: The Federal Tax Authority (FTA) will release invitations to register to select businesses to help ensure registration is completed.  All entities will be required to register, even if their taxable income is below the threshold of AED375,000 or they are exempt.

The Regulations: While the decree law has been issued, various cabinet decisions may be issued from time to time detailing further guidelines and qualification information regarding the reach and implementation of the UAE corporate tax.

The Exemptions: Exempt persons will include government entities or government controlled entities, persons engaged in an extractive business or a non-extractive natural resources business, qualifying public entities or qualifying investment funds.  Additional exemptions or exemption clarifications will be made via cabinet decisions in the coming months.

If you would like to speak to one of our corporate services experts about our services or recommendations on the tax advisors we work with, please get in touch on info@eerme.com or +971 (0)4 421 1819 today.