The UAE has issued Federal Decree-Law No. 47 of 2022 on 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 that starts on or after June 1, 2023.
The UAE’s Corporate Tax regime will levy a standard rate of 9 per cent for taxable profits exceeding Dh375,000. Profits up to and including that threshold will be taxed at a 0 per cent rate to support small businesses and start-ups.
The Ministry of Finance (the “Ministry”) confirmed the Federal Decree-Law on Taxation of Corporations and Businesses is an important milestone in building an integrated tax regime that supports the strategic objectives of the UAE and enhances its global economic competitiveness, as well as provides the national economy with sufficient flexibility to deal with and support international financial systems within the framework of the UAE’s established partnerships.
The Ministry noted that the Corporate Tax regime has been designed in line with the best global practices to both promote investment and ensure the principles included in the law are widely accepted and understood.
Importantly, the principles of fairness and equity across sectors were at the forefront of the design of the Corporate Tax regime, given the UAE’s diverse economy and the importance of driving sustainable development. To this end, the Ministry involved relevant stakeholders through public consultation and took into account feedback and views in the final design of the Corporate Tax regime.
The Ministry added that the 0 percent threshold for taxable profits up to and including Dh375,000 has been included in recognition of the vital role of start-ups and small businesses in the UAE’s economy, and the 9 per cent standard rate ensures that the Corporate Tax regime is amongst the most competitive in the world and will strengthen the UAE’s position as a global business and financial centre.
The Corporate Tax Law reflects the UAE’s support for the OECD Inclusive Framework on Base Erosion and Profit Shifting in its commitments to introducing a global minimum tax for multinationals, enhancing tax transparency and preventing harmful tax practices.
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.
In recognition of the fundamental role of free trade zones in driving the nation’s economic transformation, the existing free zone entities will be eligible to benefit from a 0 percent Corporate Tax rate on qualifying income.
Corporate Tax compliance and administration requirements have been tailored to suit different categories of taxpayers, in recognition of the diversity of businesses which will come within the scope of the new Corporate Tax regime. Additionally, the Corporate Tax regime provides generous relief for intra-group transfers and restructurings, and allows group companies to use each other’s available tax losses.
Under the provisions of the Corporate Tax Law, Corporate Tax will not be applied to salaries or other personal income from employment, whether it is earned from work in the government, semi-governmental or private sector. Interest and other personal income earned from bank deposits or savings programmes are also not subject to Corporate Tax, as well as investment in real estate by individuals in their personal capacity.
The Ministry will remain the ‘competent authority’ for purposes of bilateral and multilateral agreements and the international exchange of information for tax purposes. The Federal Tax Authority will be responsible for the administration, collection, and enforcement of the Corporate Tax Law.