The UAE has issued Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the “Corporate Tax Law”). This means businesses will be subject to UAE Corporate Tax (“Corporate Tax”) from the beginning of their first financial year which starts on or after June 1, 2023.
While we will be coming up with a More Detailed Analysis of the UAE Decree Law on Corporate over the coming few weeks, please find attached to this post the Full UAE CT Legislation published by the Ministry of Finance and Federal Tax Authority of UAE.
Corporate Tax applies to the following “Taxable Persons”–
Resident person*: Taxable income derived from the State (United Arab Emirates) or from outside the state.
Natural Person (Resident): Income derived from State or Outside the State in relate to business or business activity conducted by the natural person in the state.
A Non-Resident Person:
- The taxable income which is attributable to the Permanent Establishment of the person in the State (United Arab Emirates)
- The State sourced income which is not attributable to the Permanent Establishment of the person in the State (United Arab Emirates)
- The taxable income which is attributable to the nexus of the Non-Resident Person in the state as determined in a decision by the Cabinet
*Who is Resident Person?
- Companies and other juridical persons that are incorporated or otherwise formed or recognised under the laws of the UAE will automatically be considered a Resident Person for Corporate Tax purposes.
- This covers juridical persons incorporated in the UAE under either mainland legislation or applicable Free Zone regulations and would also include juridical persons created by a specific statute.
- Foreign companies and other juridical persons may also be treated as Resident Persons for Corporate Tax purposes where they are effectively managed and controlled in the UAE.
- Natural persons will be subject to Corporate Tax as a “Resident Person” on business income from both domestic and foreign sources.
- Any other income earned by a natural person would not be within the scope of Corporate Tax example, Salaries, dividend, capital gains and other income derived in personal capacity
Exemptions from Corporate Tax
Exemptions from Corporate Tax are highly targeted. Natural resource extraction activities in the country are exempt from Corporate Tax; however, they remain subject to existing local emirate-level taxation. Other exemptions are available to organisations such as government entities, pension funds, investment funds and public benefit organisations due to their vital importance and contribution to the social fabric and economy of the UAE.
What is Corporate Tax imposed on?
Corporate Tax is imposed on Taxable Income earned by a Taxable Person in a Tax Period.
Corporate Tax would generally be imposed annually, with the Corporate Tax liability calculated by the Taxable Person on a self-assessment basis.
The starting point for calculating Taxable Income is the Taxable Person’s accounting income (i.e., net profit or loss before tax) as per their financial statements. The Taxable Person will then need to make certain adjustments to determine their Taxable Income for the relevant Tax Period.
CT Timeline
Corporate Tax (CT) shall be applicable on Businesses/Taxable Person in UAE from Financial Years commencing on or after 1 June 2023. Hence the Effective Date on which Corporate Tax will become applicable will differ from Business to Business/Taxable person, based on their Financial Year.
Taxable Person must file a Tax Return in applicable format by no later than (9) nine months from the end of the relevant Tax Period. The same deadline would generally apply for the payment of any Corporate Tax due in respect of the Tax Period for which a return is filed.
Corporate Tax Rate
Resident Taxable Persons
- 0% (Zero Percent) on the portion of the Taxable Income (i.e., 375,000)
- 9% (Nine Percent) on the Taxable Income that exceed AED 375000
Corporate Tax rate on Qualifying Free Zone Person
- Zero percent on Qualifying Income
- 9% on Taxable Income that is not Qualifying Income.
A Qualifying Free Zone Person can make an election to be subject to Corporate Tax
Free Zone Person
Free Zone Person that is a Qualifying Free Zone Person can benefit from a preferential Corporate Tax rate of 0% on their “Qualifying Income” only.
To be considered a Qualifying Free Zone Person, the Free Zone Person must:
- maintain adequate substance in the UAE;
- derive ‘Qualifying Income’;
- not have made an election to be subject to Corporate Tax at the standard rates; and
- comply with the transfer pricing requirements under the Corporate Tax Law.
If a Qualifying Free Zone Person fails to meet any of the conditions or makes an election to be subject to the regular Corporate Tax regime, they will be subject to the standard rates of Corporate Tax from the beginning of the Tax Period where they failed to meet the conditions.
With Holding Tax rate (Tax Deducted at source): 0% withholding tax may apply to certain types of UAE-sourced income paid to non-residents. Withholding tax does not apply to transactions between UAE resident persons.
Registering, filing and paying Corporate Tax
All Taxable Persons (including Free Zone Persons) will be required to register for Corporate Tax and obtain a Corporate Tax Registration Number.
Record Keeping
A Taxable Person shall maintain all records and documents for a period of (7) seven years following the end of the Tax Period to which support the information to be provided in a Tax Return or in any other document to be filed with the Authority.
Financial Statements
The Authority may, by notice or through a decision issued by the Authority, request a Taxable Person to submit the Financial Statements used to determine the Taxable Income for a Tax Period
How ADAM GLOBAL Auditing & Accounting can assist you
- Assisting to determine whether your business will be subject to Corporate Tax and if so, from what date.
- Understand the requirements for your business under the Corporate Tax Law, including, for example:
- Whether and by when your business needs to register for Corporate Tax;
- What is the accounting / Tax Period for your business;
- By when your business would need to file a Corporate Tax return;
- What elections or applications your business may or should make for Corporate Tax purposes;
- What financial information and records your business will need to keep for Corporate Tax purposes;
- Tax Consultation
- To assist you in accounting and review of preparedness to CT law
- Audit of Financial statements
For more details and consultation Please click here
