Over the years, UAE has built
reputation to be the most profitable country to form new companies and generate
income. In recent years, many companies have been incorporated to reap its
benefits. Owing to the ease and convenience associated with doing businesses in
the UAE and for the purpose of fund collection and its distribution within UAE,
the Corporate Tax has been introduced effective from June 1, 2023.
Ministry of Finance (MoF), UAE
released Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and
Businesses for the enactment of a new corporate tax (CT) regime in the UAE. Simultaneously,
the Law been further released 158 Frequently Asked Questions for better
understanding and clarity.
Corporate Tax is intended to help
UAE achieve its strategic objectives and elevate its economic transformation.
However, UAE has exempted companies generating revenue lower than AED 375,000 in
order to provide support to small businesses and start-ups
Applicability of the law
Corporate tax shall apply to:
• Businesses which are incorporated
otherwise established or recognized in the UAE (including free zones, see below)
• Businesses incorporated
otherwise established or recognized outside of the UAE, that is effectively
managed and controlled in the UAE
• Natural persons that conducts
business activity in the UAE
It shall also apply to foreign business that have a
Permanent Establishment in the UAE; or derive State Sourced Income from UAE.
What is a UAE-sourced income?
UAE-sourced income shall include
any income earned from activities performed, assets located, or rights used for
economic purposes in the UAE. Income produced by a UAE resident person shall
also be classified as UAE-sourced income.
Free zones
Corporate tax of 9 % is
applicable to only those free zone entities that do not generate qualifying
income. Free zone persons that generate qualifying income are given a
preferential tax rate of 0% .
What part of the income shall be
treated as a qualifying income is yet to be defined through a cabinet
resolution. In order to be treated as a
“Qualifying free zone person”, the free zone entity should meet the below
mentioned criteria:
1. Maintain adequate substance in
UAE
2. Derive qualifying income
(Qualified income is yet to be defined through a cabinet resolution)
3. Satisfy transfer pricing
requirements
4. Meets any other conditions to
be prescribed through a Ministerial Decision.
Freezone persons, however, are
also required to register irrespective if they are subject to corporate tax.
Corporate Tax Exemptions
Under certain conditions, the persons
that shall be exempt from Corporate Tax are those who are engaged in the
exploitation of UAE natural resources (both extractive and non-extractive), Government
and Government-controlled entities, Qualifying public benefit entities, Charities
and public benefit organizations, Pension or social security funds or Qualifying
investment funds.
The exemption further extends to
entities incorporated in the UAE that is wholly owned and controlled by an
exempt person, if it:
• is involved or as whole, takes
part in the activity of the exempt person
• Holds assets or invests funds
for the benefit of the exempt person
• Carries on ancillary activities
to those of the exempt person
Furthermore,
UAE businesses that are bound to
Corporate Tax are required to register and seek a Tax Registration Number before
the Law becomes effective. To maintain the smooth functioning of UAE businesses,
it is advisable that financial statements are in place. There may be a
requirement to submit these financial statements to the FTA.
The Corporate Tax Law also
mentions a general anti-abuse rules (GAAR). The purpose for this is to make
sure that transactions or arrangements are not made for seeking a Corporate Tax
advantage. The application of these rules shall be from the date the Law is
published in the Official Gazette.
Conclusion
It is advisable that businesses
and natural persons start assessing, tracking and restructuring their finances to
avoid any ramifications of the new guidelines. As there are further details to
be disclosed in the coming months by the way of notices, businesses in UAE must
continue to keep track of these developments and brace themselves for any sort
of compliance required.
While we covered the main
aspects of corporate taxes in UAE, there’s much more to it. To minimize the
legal hassles in future and stay compliant with this new tax regime, For any
queries or services regarding your tax law related matters in the UAE, you can
contact us at (+971) 4
3298711 or send us an email on proconsult@uaeahead.com
or reach
out to us via our Contact Form Page and our dedicated
legal team will be happy to assist you. Also visit our website https://uaeahead.com
Article
by ProConsult Advocates & Legal Consultants the
Leading Dubai Law Firm providing
full legal services & legal representation in UAE courts
