Assumptions of Corporate Tax in UAE
The United Arab Emirates of Finance Ministry announced on 31 January 2022 that it will introduce a federal corporate tax rule for the first time in the UAE. A federal corporate tax law is expected to be issued as soon as along with executive regulations (CT Law). Corporate tax remains subject to the CT Law provisions once issued. It is expected that the corporate tax will come into the effect on or after 1 June 2023 and will apply to profits generated during financial business years starting on or after 1 June 2023. The UAE Federal Tax Authority will be responsible for administering, collecting, and enforcing corporate tax in line with laws and regulations to be issued by the Ministry.
Scope of Corporate Tax in UAE
The proposed CIT regime is expected to apply to all businesses (commercial, industrial and professional and etc) activity in the UAE, except for the extraction of natural resources, which is already subject to taxation at an Emirate level and will may be remain. The CIT regime will also apply to individuals to the limit they hold a business licence or permit to carry out commercial, industrial and professional activity in the UAE. It’s includes income earned by freelance professionals for activity carried out under a freelance licence or permit.
The MOF (Ministry of Finance) has stated that the proposed federal CIT regime will also apply to banking operations in the UAE (however, foreign banks branches are already subject to a CIT regime at Emirate level).
It was also announced that corporate tax encouragement currently offered to free zone businesses will continue to be honoured, to the extent the free zone business complies with all applicable regulatory requirements. Although, Free zone businesses have to comply with certain obligations under the CIT regime, including the requirement to register and file a CIT return. Further details on CIT exemptions and exclusions will be provided by the MOF (Ministry of Finance) in due course.
PROPOSED RATES
The corporate tax rates in UAE will be as follows:
- 0% tax rate on taxable income up to AE$375,000 (c. US$02,095).
- 9% tax rate on taxable income above AE$375,000 (c. US$102,095).
- A different tax rate for big multinationals that meet specific criteria set with reference to the Global Anti-Base Erosion Model Rules (Pillar Two) of the OECD Base Erosion and Profit Shifting project.
Income Exempted From CIT
The MOF (Ministry of Finance) has announced that the following types of income will be exempted from the CIT regime:
- Income obtained from the extraction of natural resources.
- A personal salary or income earned through employment. However, an individual will be subject to corporate tax if his or her income is earned from activities from freelance license or permit.
- Interest and other income earned by an individual from bank deposits or saving plans.
- Dividends and capital gains earned by a UAE businesses from its qualifying shareholdings (ie, an ownership interest in a UAE or foreign company that meets certain conditions to be specified under the CT law).
- Qualifying intra-group transactions and reorganisations subject to certain conditions to be specified under the CT law.
- Foreign firm and individuals who do not conduct a trade or business in the UAE on an ongoing or regular basis.
- Dividends, capital gains, and other income earned from due shares or other securities in a personal capacity.
Corporate Taxes on corporate income
There are no federal CIT regime in the UAE. Instead, CIT is determined on a regional basis under the respective Tax Decrees issued by the government of each individual Emirate. Some of the Emirates have also issued specific Banking Tax Decrees, which impose CIT on branches of foreign banks operating in each of the related Emirates. Under the Tax Decrees, CIT is payable under a progressive rate system, with the rates up to 55%. foreign banks Branches are subject to CIT at a flat rate of 20%. CIT is currently practically only applicable on foreign oil companies engaged in upstream petroleum activities and branches of foreign banks.
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