Briefing Note: UAE Federal Corporate Tax
Every business in the UAE must register and will be potentially liable for UAE Corporate Tax (at rates of 0%, 9% or 15% of audited profit) in respect of the financial year commencing on or after 1 June 2023 (UAE Corporate Tax Law - Federal Decree 47/2022).
UAE businesses whose financial year runs with the calendar year will start to be taxed on their profit in the financial year commencing 1 January 2024 and will need to file a return and pay the tax within 9 months. Heavy fines await those who default. The implementing Executive Regulations are still awaited.
Businesses operating under a commercial licence, or has a permanent establishment, or place of management and control, in the UAE must register on the Tax portal of the Federal Tax Authority. This includes Free Zone businesses and sole traders. The portal combines VAT, CT and Excise.
Where the taxable income of a business exceeds AED 375,000 per annum, the applicable tax rate will be 9% on taxable profit (as audited in accordance with IFRS standards). In the case of multinational enterprises with a global turnover in excess of Euros 750 million the rate is 15%.
Free Zone companies enjoying tax holidays will be zero-rated (but must still register and file) but will lose their zero-rated status if they trade with the mainland. Businesses with a mix of activities, some of which are potentially exempt, or zero-rated, must restructure, or else become liable to pay tax at the standard rate.
This tax is applied to all of a business' activities as determined from its' end of year duly audited accounts. It will not be apportioned contract by contract, nor activity by activity, and an audit report to the required standard will be essential. The UAE has many (108) double tax treaties in effect so businesses will be able to offset their tax liabilities outside the UAE and foreign tax credit may be applied in the case of remitted income from overseas branches.
Wholly Government-owned UAE companies that carry out a sovereign or mandated activity, and that are listed in a Cabinet Decision will be exempted from CT, as will businesses engaged in the extraction and exploitation of UAE natural resources that are subject to Emirate-level taxation. Banks will be taxed under this regime in the future. Charities as well as public pension funds will be exempt. Foundations can be treated as unincorporated partnerships.
Withholding tax will not be applied and personal income is not taxed. Dividends from taxpaying UAE companies (if more than 5% of the shares are held for at least 12 months) will be exempt. Foreign investors will not be assessed to CT simply on the basis of dividends, gains, interest, or royalties derived from the UAE. Groups of companies that are owned as to at least 95% by the same parent can form a single CT tax entity.
Splitting offshore services out of large UAE contracts (eg. engineering and procurement in construction projects) can be a good tax mitigation strategy but detailed legal advice will be required to ensure that overall project liabilities are not prejudiced, and the owner doesn't assume additional risk.
This is a key points summary of the essential impact of the new UAE Corporate Tax law. It is not exhaustive. Please ask us, review the law, or the FTA guidance before acting on the information contained herein. We do not accept liability for reliance on this summary.