UAE has just announced that a corporate tax of 9% will be imposed on business profits starting June 01, 2023. This tax is not a tax on individuals and their incomes but a direct tax levied on the profits of businesses. The tax will be paid on the firm’s income, people, production, environmental, and property impact.
The country has long held its status as a tax haven for both individuals and companies. With this tax introduction, UAE is moving away from a levy-free country to a global minimum tax country. This latest move now is seen as a way of creating new and alternative revenue streams while reducing the UAE’s dependency on its previous main sources of revenue.
UAE is a member of the Organization for Economic Co-operation and Development (OECD) and has pledged to be a part of its profit shifting and anti-base erosion initiatives. OECD works with the member countries to build sound policy frameworks for better lives.
More than 130 countries that are part of OECD have agreed to overhaul the global tax system and implement a minimum of 15% corporate tax in a bid to prevent businesses from exploiting low tax jurisdictions. The country’s Ministry of Finance (MOF) said that this new corporate tax which will be introduced next year will help UAE meet international standards for tax transparency.
To find out more about the proposed corporate tax! Read on.
Corporate Income tax
Corporate Income tax (CIT ) is the tax levied by federal and state governments on business profits. In UAE, a business that has a financial year from July 1, 2023, and ending on June 30, 2024, will have to pay 9% tax from July 1, 2023, which is the beginning of the first financial year that starts on or after June 1, 2023. Any business that has a financial year starting on Jan 1, 2023, and ending on Dec 31, 2024, will become subject to corporate tax from Jan 1, 2024.
This tax is a federal tax and so will be applicable to all 7 emirates in the country. Except for the extraction of natural resources, all businesses and commercial activities will be subjected to pay CIT. Even businesses established in a free zone will be required to register and file corporate taxes.
UAE did not have a federal CIT regime before. But now the CIT rates for the businesses applicable are as follows – 9% corporate tax will be collected for businesses with taxable income exceeding AED 375,000. A different tax rate will be applicable for large multinationals that meet certain criteria of OECD’s Pillar two project.
The proposed CIT has certain exemptions. In order to support small and medium-size enterprises tax rate will be 0% for all taxable income up to AED 375,000. This tax is not for individuals and their incomes. Also, businesses that involve the extraction of natural resources will remain subject to Emirate-level corporate taxation.
Though free zone businesses in UAE will have to pay this tax, the corporate tax incentives offered currently to those businesses that do not operate in mainland UAE and those that comply with all regulatory requirements will continue to enjoy the tax incentives.
Compliance & Obligations
Businesses that are subjected to CIT ( Corporate Income tax) will be required to file a return electronically every year. Those businesses which fail to comply will be subjected to penalties and non-compliance with the CIT regime.
Although UAE has made the announcement now about this new tax, businesses will have sufficient time to prepare before the corporate tax is introduced next year. Further details will be announced by the government closer to the implementation dates. It is to be noted that the corporate tax rates proposed in UAE are still lesser than other countries in the gulf where it is 20% in Saudi Arabia, 10% in Qatar, and 15% in Oman. If you need further assistance or to know more, contact us here.