Being a key business hub in the middle east, UAE provides significant tax benefits to investors. Unique tax benefits are given to provide additional support to businesses set up in UAE-free zones.
UAE's Ministry of Finance recently announced the introduction of a federal corporation tax (CT) on January 31, 2022, slated to affect companies’ financial periods starting on or after June 1, 2023. Under an agreement signed between the OECD and the UAE in Dubai, the two partners will work together to establish a regional dialogue on the negotiation and application of tax treaties and produce an official Arabic version of the OECD Model Tax Convention. The UAE Corporate Tax system adheres to global best practices and Guidelines issued by OECD so that the compliance burden on businesses can be minimized.
Corporate tax is a direct tax levied on a company's net income or profit. In some countries, the corporate tax is also known as business profit tax or corporate income tax.
All business and commercial activities carried out within the seven emirates of the UAE are subject to UAE Corporation Tax. However, there are some exceptions:
The impact of corporate tax on the Emirate's banking tax decree will be revealed in the coming months. As a result, the law will have an impact not just on overseas bank branches but also on domestic banks, which will also be subject to corporation tax.
Furthermore, the UAE corporate tax law will now apply to the international banking industry, which has been subject to an emirate-level bank tax decree.
Corporate Tax will become effective in fiscal years beginning on or after June 1, 2023. Businesses adopting a fiscal year ending May 31, 2024, will be subject to corporate tax. The first tax returns will be filed in 2024. Corporations with fiscal years starting on January 1, 2023, and ending on December 31, 2023, will be subject to corporate tax.
For Example, Corporations with fiscal years starting on June 1, 2023, and ending on May 30, 2024, will be subject to corporate tax, likewise:
|Financial year-end||First Tax period|
|30 June||1st July 2023- 30th June 2024|
|31 December||1st January 2024- 31st December 2024|
For corporations, the following rates will apply:
Corporate tax will not apply to the following:
For now, the UAE government plans to maintain its commitment to enterprises registered in Free Trade Zones by providing exemplary tax benefits if they meet the conditions levied. Further, a Corporate Tax return must also be submitted by each free zone annually.
Further business units headquartered in a free zone with mainland operations will be subject to corporate tax
All businesses in the UAE are now subject to corporate tax. However, personal income is still not going to be taxed in the UAE. Free Zone Businesses can avail of tax benefits by carrying on their business activities within the Free zone or outside of UAE. However, if they carry on activity within the UAE mainland, the standard tax treatment will be applied to income from such activities.
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In addition to the tax law areas listed above, our tax advisors assist clients in the following areas, as well:
You can turn to AMCA for all your Corporate Tax needs to ensure smooth submission to the Federal Tax Authority. Our services include:
The Free Zone Person who is considered a Qualifying Free Zone Person can take advantage of a preferential rate of Corporate Tax of 0% on their overall "Qualifying Income".
For a Free Zone Person to be considered a Qualifying Free Zone Person, the following criteria must be met:
Qualifying Free Zone Persons may be required to meet additional conditions prescribed by the Minister.
Suppose a Qualifying Free Zone Person fails to satisfy any of the conditions or elects to be subject to the regular Corporate Tax regime. In that case, they will be subject to the standard rates of Corporate Tax from the beginning of the Tax Period in which they failed to satisfy the conditions.
The Corporate Tax in UAE is a direct tax imposed on corporations and other businesses net income or profit. In other jurisdictions, Corporate Tax is also known as Corporate Income Tax or Business Profits Tax.
By establishing a competitive corporate Tax regime based on international best practices, the UAE will cement its position as a leading global investment and business hub, as well as accelerate its development and transformation.
The UAE also affirms its commitment to international tax transparency standards by introducing a Corporate Tax regime.
Most Middle Eastern countries have a comprehensive Corporate Tax regime.
Legal entities incorporated in the UAE and juridical entities effectively managed and controlled in the UAE are covered by UAE Corporate Tax, natural persons conducting business in UAE, and foreign juridical entities with permanent establishments in the UAE.
Corporate Tax will apply to individuals only if they are engaged in a business or business activity in the UAE, directly or through an unincorporated partnership or sole proprietorship. In due course, a Cabinet Decision will specify what would fall within the scope of UAE Corporate Tax for a natural person.
YES - The UAE Corporate Tax does not distinguish between nationality and residence. The UAE Corporate Tax applies to juridical persons incorporated or residing in the UAE and those with a permanent establishment in the UAE. There is no distinction between the residence and nationality of the individual founders or (ultimate) owners of the entity.
UAE Corporate Tax is automatically exempt from the following persons or can be applied for by them:
For UAE Corporate Tax purposes, any entity incorporated in the UAE will be automatically considered a 'resident'. In addition, individuals engaged in business or business activities in the UAE will also be regarded as residents of UAE Corporate Tax.
If a foreign company is effectively managed and controlled in the UAE, it may be considered a resident person for UAE Corporate Tax purposes. All facts and circumstances must be considered when determining where a company is effectively managed and owned. Still, a relevant indicator may be the location of where strategic decisions are made that affect the company.
A legal entity incorporated and effectively managed and controlled outside of the UAE is considered a non-resident under the Corporate Tax Law. In addition, if a natural person is not engaged in taxable business or business activities in the UAE, they are considered to be a non-resident.
Salaries and other employment income (whether from the public or private sector) are not subject to UAE Corporate Tax. An individual's employment may include a continuing service relationship in which the individual derives most or all of their income from one person. The service income is remuneration for the natural person's labor.
In accordance with the Cabinet Decision that will be issued in due course, self-employed persons will be subject to UAE Corporate Tax only if their activities are considered taxable businesses or business activities. Nonetheless, in spite of the fact that the self-employed individual may be regarded as conducting a taxable business or business activity, Corporate Tax is due on any profit/income in excess to the AED 375000. The Small Business Relief is the 0% charge in the first AED 375000.
Yes. Branches of UAE companies will report their income in their UAE "parent" or "head office's" taxable income report.