What is corporate tax and how does it work in the UAE?
What is Corporate Tax in the UAE?
Corporate tax in UAE also referred to as “Corporate Income Tax” or “Business Profits Tax” is a form of direct tax levied on the net income or profits of corporations and other entities derived from their business. Except for the extraction of natural resources, which will continue to be subject to Emirate-level corporate taxation, UAE Corporate Tax will apply to all enterprises operating in the UAE. Only those foreign organizations and people who regularly conduct trade or business in the UAE will be liable for Corporate Tax. All types of profits and other (net) income reflected in the financial statements prepared under generally accepted accounting principles shall be subject to UAE Corporate Tax on an equal basis.
Understanding Corporate Tax in the UAE
Applicability and Effective Dates:
- Corporate tax applies to all enterprises operating in the UAE, except for those involved in natural resource extraction, which remains subject to Emirate-level taxation.
- Foreign organizations and individuals conducting regular trade or business activities in the UAE are liable for corporate tax.
- The implementation of corporate tax begins for financial years starting on or after June 1, 2023.
- For businesses adopting a calendar year starting on January 1, 2023, corporate tax applies from January 1, 2024, with filings likely due in mid-2025.
Key Features:
- Individuals are not subject to corporate tax on personal income sources unrelated to UAE trade or business.
- Foreign investors not conducting business activities in the UAE are exempt from corporate tax.
- Corporate tax applies to the adjusted accounting net profit of businesses.
- Businesses in free zones adhering to regulations still enjoy corporate tax benefits.
- Natural resource extraction remains subject to Emirate-level corporate taxes.
- No withholding tax applies to domestic or cross-border payments.
- No corporate tax on capital gains, dividends from eligible shareholdings, or qualifying intragroup transactions and restructurings.
- Foreign tax credits are allowed against UAE corporate tax payable.
- Generous loss transfer and utilization laws benefit businesses.
Corporate Tax Rates:
- AED 375,000 and below: 0% tax rate.
- Above AED 375,000: 9% tax rate.
- Multinational enterprises (MNEs) under Pillar 2 of the BEPS 2.0 framework face different rates as per OECD rules.
Exempted Income:
- Dividends received by UAE-based corporations from eligible shareholdings.
- Capital gains.
- Profits from group reorganizations and intra-group transactions.
Frequently Asked Questions:
Why Introduce Corporate Tax? Corporate tax aligns with international standards, strengthening the UAE’s position as a global trade and investment hub while upholding tax transparency and preventing evasion.
Is UAE the First Country to Introduce Corporate Tax? Most nations, including many GCC members, have comprehensive corporate tax systems.
Effective Date of Corporate Tax? For fiscal years starting on or after June 1, 2023.
Applicability Across Emirates? As a federal tax, corporate tax applies nationwide.
Role of Federal Tax Authority? Facilitating bilateral or multilateral agreements and international tax information exchange.
Corporate Tax in Free Zones? Businesses in free zones are subject to corporate tax but retain existing incentives if compliant and not conducting UAE mainland business.
By understanding corporate tax regulations in the UAE, businesses can ensure compliance and navigate the tax landscape effectively.
