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Corporate Tax in UAE

Start of a new tax era in UAE effective from 1st June, 2023

On 31st January, 2022, the UAE Ministry of Finance (MOF) announced the introduction of The UAE Federal Corporate Tax (CT) for the first time in the UAE. The said astonishing move has been adopted in order to meet international standards for tax transparency and prevent harmful financial practices.

In this article, we would understand the following 5 aspects of UAE CT Law

  • Applicability &Scope
  • Non-applicability
  • Effective date
  • Threshold limits and effective rates
  • Compliances& provisions
1) Applicability & Scope

The UAE CT Law will be applicable to all companies, individuals & freelancers having a commercial license or permit carrying out commercial, industrial (except for the extraction of natural resources) and/or professional activities.

For Freezone entities:
Freezone entities will have a registration and filing obligation under the UAE CT law, however existing tax holidays offered by freezones are expected to be retained provided that the freezone entity(ies) operate solely within the freezone and in line with the regulatory requirements.

2) Non-Applicability

The UAE CT Law will not be applicable on following:

  • An individual’s salary and other employment income (whether received from the public or private sector).
  • Dividends, capital gains and other income earned from owning shares or other securities in their personal capacity.
  • Interest and other income earned by an individual from bank deposits or saving schemes
  • Dividends and capital gains earned by a UAE business from its qualifying shareholdings
3) Effective Date

The UAE CT regime will become effective for financial years starting on or after 1 June 2023.
A business that has a financial year starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE CT from 1 July 2023.
A business that has a (calendar year) financial year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE CT from 1 January 2024.

4) Threshold limits and effective rates

The businesses in UAE with net profits not exceeding AED 375,000 per year would not be required to pay corporate taxes.

The UAE CT rates shall be as follows:

  • 0% for taxable income up to AED 375,000;
  • 9% for taxable income above AED 375,000; and
  • a different tax rate for large multinationals that meet specific criteria set with reference to 'Pillar Two' of the OECD Base Erosion and Profit Shifting project.
5) Compliances & Provisions

The businesses in UAE would now be required to do following compliances:

  • Registration under UAE CT law
  • Electronic Filing of UAE CT return per financial period
  • Maintenance of books of accounts
  • Preparation of financial statements
  • Withholding of tax
  • Transfer pricing

Following noteworthy provisions also need to be kept in mind by the businesses in UAE:

  • Carry forward of business losses and set off against future business income
  • A UAE group of companies can elect to form a tax group and be treated as a single taxable person
  • Foreign CT paid on UAE taxable income will be allowed as a tax credit against the UAE CT liability

For any queries with regards to corporate tax in UAE, you can call us on +91 7738990548 or reach out to us at [email protected] We would keep you updated on a regular basis as an when new updates are being announced by theUAE Ministry of Finance (MOF) with regards to UAE corporate tax.

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