Corporate Tax in the UAE
Corporate Tax, commonly known as Business Profits Tax, is a form of direct taxation imposed on the earnings or profits of corporations and businesses. In some regions, this tax is also referred to as “corporate income tax.”
The UAE’s adoption of a competitive Corporate Tax system aligns with global best practices and reinforces its role as a significant global center for business and investment. This move accelerates the nation’s progress and transformation toward achieving strategic objectives.
The implementation of the Corporate Tax system underscores the UAE’s dedication to adhering to international tax transparency standards and preventing detrimental tax practices. This commitment reflects the UAE’s commitment to global tax compliance and responsible taxation.
Overview, Scope & Rates
The UAE CT regime will be effective for financial years beginning on or after June 1, 2023.
Here are some examples to illustrate:
If a business has a financial year that starts on July 1, 2023, and ends on June 30, 2024, it will be subject to UAE CT from July 1, 2023. This marks the commencement of the first financial year that starts on or after June 1, 2023.
Alternatively, if a business follows the calendar year for its financial year, starting on January 1, 2023, and ending on December 31, 2023, it will become subject to UAE CT from January 1, 2024. This aligns with the initiation of the first financial year that commences on or after June 1, 2023.
UAE CT will encompass all businesses and commercial activities in the UAE, with the exception of natural resource extraction, which will continue to be subject to corporate taxation at the Emirate level.
Typically, this assessment relies on whether the individual possesses, or is obligated to acquire, a business license or permit to engage in the relevant commercial, industrial, or professional activities within the UAE.
The taxable income will comprise the accounting net profit of a business, with adjustments as specified by the UAE CT law. This accounting net profit is the figure reported in financial statements prepared following globally recognized accounting standards.
The UAE CT rates are as follows:
- 0% for taxable income up to AED 375,000.
- 9% for taxable income exceeding AED 375,000.
- Large multinational corporations meeting specific ‘Pillar Two’ criteria will have a different tax rate.
- A multinational corporation operates in multiple countries through subsidiaries, branches, or other forms of presence. Merely earning income abroad without foreign registration doesn’t classify a business as multinational.
- In the context of the global minimum effective tax rate proposed under ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project, “large” refers to a multinational corporation with consolidated global revenues exceeding EUR 750 million (approximately AED 3.15 billion).
UAE CT generally applies to income from freelance activities, but CT is not payable unless the freelance professional’s annual net income exceeds AED 375,000.
- The CT liability is calculated as follows:
- Taxable income from AED 0 to AED 375,000 at 0% = AED 0.
- Portion of taxable income exceeding AED 375,000 (i.e., AED 400,000 – AED 375,000 = AED 25,000) at 9% = AED 2,250.
- Thus, the total UAE CT liability for the year will be AED 0 + AED 2,250 = AED 2,250.
- This amount can be further reduced by any foreign taxes paid on the relevant income (see ‘Tax Credits’ section).
- Businesses involved in natural resource extraction remain subject to Emirate-level corporate taxation and are not covered by the UAE CT regime.
- Details about other UAE CT exemptions and exclusions will be provided later.
Income Exempt from CT
UAE CT will not apply to dividends and capital gains obtained by a UAE business from its qualifying shareholdings.
A ‘qualifying’ shareholding pertains to an ownership stake in a UAE or foreign company that satisfies specific criteria outlined in the UAE CT law.
Transactions within a group of companies that meet the required conditions will be exempt from UAE CT.
Foreign Individuals and Entities
Foreign entities and individuals will be subject to UAE CT only if they conduct a trade or business in the UAE on an ongoing or regular basis.
UAE CT will typically not be imposed on income earned by foreign investors, such as dividends, capital gains, interest, royalties, and other investment returns.
Transactions within a group of companies that meet the required conditions will be exempt from UAE CT.
Free Zone Businesses
Free zone businesses will be subject to UAE CT, while still benefiting from CT incentives, provided they comply with regulatory requirements and do not engage in business with mainland UAE.
Businesses established in free zones will be required to register and file a CT return. Further details regarding the compliance obligations of free zone businesses will be provided later.
The UAE CT treatment for businesses in free zones will be consistent across all free zones.
Industry Sectors
Companies involved in natural resource extraction will remain subject to Emirate-level corporate taxation and will not fall under the UAE CT regime.
Banking operations will be subject to UAE CT. Additional details regarding current Emirate-level corporate taxation will be provided later.
Businesses engaged in real estate management, construction, development, agency, and brokerage activities will be subject to UAE CT.
Treatment of Losses
The UAE CT regime will allow businesses to utilize losses incurred from the UAE CT effective date to offset taxable income in subsequent financial periods. A tax loss occurs when a business’s total deductions exceed its total income for the relevant financial period.
Excess tax losses may be carried forward and applied against taxable income in future years, subject to specific conditions. Further information on UAE CT loss carry-forward rules will be provided later.
Tax losses from one group company may be utilized to offset taxable income of another group company, provided certain conditions are met. More details on the group loss utilization rules will be provided later.
Tax Grouping
A group of UAE companies can opt to form a tax group, treated as a single taxable entity, subject to certain conditions. Such a UAE tax group will only need to file a single tax return for the entire group.
Withholding Tax
Withholding tax is a tax collected at the source by the payer on behalf of the income recipient. It applies to various types of payments, including dividends, interest, royalties, and similar transactions.
UAE withholding tax will not be applicable to domestic and cross-border payments under the UAE CT regime.
Tax Credits
Foreign CT paid on UAE taxable income will be allowed as a tax credit against the UAE CT liability.
Transfer Pricing
Transfer pricing rules ensure that transactions between related parties are conducted at arm’s length terms, as if they were independent entities.
UAE businesses will need to comply with transfer pricing rules and documentation requirements, aligning with the OECD Transfer Pricing Guidelines.
Administration
Yes, businesses will need to register for UAE CT purposes. Further details on the registration process and ongoing compliance obligations will be provided later.
UAE businesses will only need to file one CT return per financial period. No provisional or advance CT filings will be required. A financial period typically spans a year.
The CT return must be filed electronically. Additional guidance regarding this requirement will be issued later.
UAE businesses will not be required to make advance UAE CT payments.
Similar to other taxes in the UAE, businesses will face penalties for non-compliance with the CT