18 May 2023
The Ministry of Finance has released an Explanatory Guide for Federal Decree-Law No 47 of 2022 on the Taxation of Corporations and Businesses, which sets out the basis for the imposition of a federal tax on corporations and business profits. In addition, the guide provides a comprehensive explanation of the Corporate Tax Law's provisions and its implementing decisions issued as of 30 April 2023, helping to interpret the law and its application.
The Guide explains various aspects of the UAE's Corporate Tax regime, intending to encourage business activity while minimizing the compliance burden on taxpayers. The Corporate Tax Law offers several benefits to support start-ups and small businesses, including 0% Corporate Tax rates for taxable income up to AED375,000 and qualifying Free Zone persons. In addition, companies with turnovers up to AED3,000,000 may also avail of simplified filing requirements and pay no tax.
The guide outlines other features of the Corporate Tax regime, including 0% withholding tax on cross-border and domestic payments, tax exemptions for foreign branch profits, dividends and capital gains, and foreign tax credits for foreign-sourced income. The guide also highlights targeted exemptions for entities subject to Emirate-level corporate taxation or considered essential to the social fabric of the UAE, such as government entities, investment funds, pension and social security funds, public benefit organizations, and natural resource businesses.
The guide explains transfer pricing documentation requirements and thresholds to ensure a minimal compliance burden on small and medium enterprises. In addition, it clarifies the ability to utilize Tax Losses in future tax periods without a time limitation and transfer Tax Losses between tax group companies. As a result, UAE groups can file and pay their Corporate Tax consolidated as a single taxable entity for administrative efficiencies and simplicity.
Other features of the Corporate Tax regime include relief from Corporate Tax for intra-group transfers and business restructuring transactions, the ability for family foundations and trusts to be treated as tax transparent, and the alignment of taxable income calculation to accounting profits. The UAE's headline Corporate Tax rate is set at 9%, applicable to taxable income above AED375,000, which is among the lowest competitive Corporate Tax rates globally and supports the UAE's objective of remaining a leading destination for business and investment.
Choose AMCA for All Your Corporate Tax Queries
If you're looking for expert assistance with navigating the complex world of corporate taxation in the UAE, look no further than AMCA. As a leading tax advisory firm in the region, AMCA is dedicated to providing businesses with the guidance and support they need to ensure compliance with the latest tax regulations. With a team of experienced tax professionals, AMCA can help you interpret the Corporate Tax Law and its implementing decisions and assist with tax planning, transfer pricing documentation, and more. Furthermore, with a focus on delivering personalized service and building lasting relationships with clients, you can rely on AMCA to be a trusted partner in all your corporate tax queries.