Basic Assumptions of Corporate Tax in the UAE

How will the revised laws affect?

For the first time in the UAE, the Finance Ministry stated on January 31, 2022 that it will implement a federal corporation tax rule. Executive regulations and a federal corporation tax code are planned to be released as soon as possible (CT Law). Once issued, the CT Law requirements apply to corporate tax. The corporate tax is expected to take effect on or after June 1, 2023, and will apply to earnings earned during financial business years beginning on or after that date. The UAE Federal Tax Authority will be in charge of administering, collecting, and enforcing corporation tax in accordance with the Ministry’s laws and regulations.

Areas affected by corporate tax

In the United Arab Emirates, corporate tax has a wide range of applications.

The proposed CIT regime is expected to apply to all business activities in the UAE (commercial, industrial, professional, and so on), with the exception of natural resource extraction, which is presently taxed at the Emirate level and may continue to be so. Individuals who possess a business license or authorization to engage in commercial, industrial, or professional activity in the UAE will be subject to the CIT system. Income made by freelance professionals for work done under a freelancing license or permission is included.

The proposed federal CIT framework will apply to banking operations in the UAE, according to the MOF (Ministry of Finance). However, foreign bank branches are already subject to a CIT regime at the Emirate level.

It was also announced that the current corporation tax incentives provided to free zone enterprises will be honored as long as the free zone business complies with all applicable regulatory requirements. However, under the CIT framework, free zone firms must comply with certain duties, including the necessity to register and file a CIT return. The MOF (Ministry of Finance) will give more information on CIT exemptions and exclusions in due course.

Rates That Have Been Proposed

The following are the corporation tax rates in the UAE:

  • 0% tax on taxable income up to AE $375,000
  • 9% on taxable income over AE $375,000
  • A separate tax rate for large corporations that meet particular conditions based on the OECD Base Erosion and Profit Shifting project’s Global Anti-Base Erosion Model Rules (Pillar Two).

CIT-Exempted Earnings

According to the MOF (Ministry of Finance), the following sources of income will be exempt from the CIT regime:

  • The proceeds from the extraction of natural resources are referred to as “natural resource income.”
  • A personal salary or revenue derived from work. However, if an individual’s income is derived from freelance work, he or she will be subject to company tax.
  • Interest and other income produced by an individual from bank deposits or savings plans will be taxed at the following rates in the UAE.
  • Dividends and capital gains generated by a UAE company’s qualifying shareholdings (i.e., an ownership interest in a UAE or foreign company that meets certain conditions to be specified under the CT law)
  • Intra-group transactions and re organizations that qualify are subject to various conditions set out in the CT law.

Corporate income taxes

In the United Arab Emirates, there is no federal CIT regime. CIT is instead calculated on a regional basis according to the Tax Decrees published by the government of each emirate. Some Emirates have additionally adopted separate Banking Tax Decrees, imposing CIT on international bank branches operating in each of the linked Emirates. CIT is levied at a progressive rate system under the Tax Decrees, with rates ranging from 5% to 55%. At banks from other countries, CIT is levied at a flat rate of 20% on all branches. CIT is currently solely in effect for foreign oil businesses operating in upstream petroleum activities and foreign bank branches.

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