In the UAE, the introduction of a federal corporate tax regime marks a significant shift in its taxation landscape. The corporate tax, effective from June 1, 2023, applies to various entities and businesses, with specific provisions and exemptions. Here’s a breakdown of who is subject to corporate tax in the UAE:
To Whom It is Applicable?
All Businesses and Individuals
Conducting business activities under a commercial licence in the UAE.
Banking Operations
Foreign Entities and Individuals
Only if they conduct trade or business in the UAE in an ongoing or regular manner.
Businesses Engaged in
- Real estate management
- Construction
- Development
- Agency and brokerage activities.
Free Zone Businesses
The UAE CT regime will honour current CT incentives for free zone businesses that comply with all regulatory requirements and do not conduct business in the UAE mainland.
Exemptions
Certain businesses and income streams are exempt from corporate tax. These include:
Natural Resources Extraction
Businesses engaged in the extraction of natural resources will remain subject to the current Emirate-level corporate taxation, exempt from CT.
Dividends and Capital Gains
Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from CT.
Intra-Group Transactions
Certain intra-group transactions and reorganizations may qualify for an exemption from corporate tax (CT), provided they meet specific conditions.
Individual Earnings
Salary and other employment income, whether received from the public or private sector.
Bank Deposits or Saving Schemes
Interest and other income earned by an individual.
Foreign Investors
Income earned from dividends, capital gains, interest, royalties, and other investment returns.
Real Estate Investments
Investments in real estate by individuals in their personal capacity.
Securities Ownership
Dividends, capital gains, and other income earned by individuals from owning shares or other securities in their personal capacity.
Corporate Tax Rates in the UAE
The UAE Ministry of Finance has established the following Corporate Tax (CT) rates:
CT Rates
0%
for taxable income up to AED 375,000
9%
for taxable income above AED 375,000
New Tax Regulations for Large Multinationals
As part of the ongoing commitment to address tax base erosion and profit shifting, a new tax rate will soon be introduced for large multinational corporations.
What This Means for Large Multinationals
- Specific Criteria: The new tax rate will apply to large multinational corporations that meet certain criteria. These criteria are currently being established and will be directly linked to the guidelines provided under Pillar Two of the BEPS Project.
- Objective: The primary goal is to combat tax avoidance by large MNEs and ensure a fairer distribution of tax revenues globally.
- Implementation: Further details regarding the specific tax rate and the precise criteria for applicability will be announced soon.
Administration and Compliance
The FTA provides comprehensive resources, references, and guides about corporate tax. Additionally, businesses can find information on how to register and file returns on the FTA’s official website.
Corporate Tax Period
Corporate Tax is imposed on an annual basis, making it necessary to specify the “Tax Period.” The Tax Period is defined as the Financial Year used for preparing financial statements. Generally, this will follow the Gregorian calendar year, from January 1 to December 31. However, if a business uses a different 12-month period for its financial statements, the Tax Period will align with that Financial Year.
Key Points
- Standard Tax Period: January 1 to December 31
- Alternative Tax Period: A different 12-month period used by the business for financial statements
Businesses must ensure that their financial statements are prepared according to their specified Tax Period for accurate Corporate Tax reporting and compliance.
Due Dates for CT Registration
The UAE has established specific deadlines for businesses to register for Corporate Tax to ensure compliance with the new federal tax system. Here are the key dates and requirements:
General Registration Deadlines
- Existing Businesses: Businesses operating before the introduction of the Corporate Tax Law must register for Corporate Tax before the commencement of their first Tax Period under the new regime.
- New Businesses: New businesses established after the introduction of the Corporate Tax Law must register within 30 days of commencing their business activities.
Key Points
- Timely Registration: Businesses must ensure they register for Corporate Tax by the specified deadlines to avoid penalties and ensure compliance.
- Federal Tax Authority (FTA) Website: The registration process can be completed on the Federal Tax Authority’s official website. The FTA provides detailed guidelines and support for businesses to navigate the registration process.
Importance of Compliance
Registering for Corporate Tax on time is crucial for all businesses to:
- Avoid penalties for late registration
- Ensure smooth filing and payment of taxes
- Stay compliant with UAE tax regulations