Corporate Tax in the UAE

After the announcement of the Corporate Tax (CT) by the authorities in UAE on 31 January 2022, it creates talks among the businesses and tax professionals. As per this announcement, it sets the United Arab Emirates as the lowest corporate tax rate within GCC region at the standard rate of 9% and will be effective on or before 1 June 2023.

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Because CT is new in the UAE, here’s are some essential points you and your business should know about this new tax regime based in MoF issued statement.

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What is Corporate Tax?

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Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses. Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.

Why is Corporate Tax implemented in UAE?

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A competitive CT regime based on international best practices will cement the UAE’s position as a leading global hub for business and investment, and accelerate the UAE’s development and transformation to achieve its strategic objectives;

Introducing a CT regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices

Who should pay Corporate Tax in the UAE?

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UAE Federal CT will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation.

It is basically, all the businesses whose taxable profit (net) is more than 375,000 AED fall under the purview of corporate tax and are required to pay a certain percentage of net profit as corporate tax.

Why is Corporate Tax implemented in UAE?

‍

A competitive CT regime based on international best practices will cement the UAE’s position as a leading global hub for business and investment, and accelerate the UAE’s development and transformation to achieve its strategic objectives;

Introducing a CT regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices

Who should pay Corporate Tax in the UAE?

‍

UAE Federal CT will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation.

It is basically, all the businesses whose taxable profit (net) is more than 375,000 AED fall under the purview of corporate tax and are required to pay a certain percentage of net profit as corporate tax.

What is the rate of Corporate Tax in the UAE?

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The CT rates are 0% for taxable income up to AED 375,000 and 9% for taxable income above AED 375,000.
For example, if a business has earned taxable income of AED 450,000 in a given financial year, the UAE CT amount payable will be calculated as follows:

• Taxable income of AED 0 - AED 375,000 at 0% = AED 0
• Portion of taxable income exceeding AED 375,000 (i.e. AED 450,000 - AED 375,000 = AED 75,000) at 9% = AED 6,750

The UAE CT liability for the year will be AED 0 + AED 6,750= AED 6,750

When will Corporate Tax in the UAE be implemented?

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The CT in UAE  will become effective for financial years starting on or after 1 June 2023

To clarify, here are some examples:

• A business that has a financial year starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE CT from 1 July 2023 (which is the beginning of the first financial year that starts on or after 1 June 2023)
• A business that has a (calendar year) financial year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE CT from 1 January 2024 (which is the beginning of the first financial year that starts on or after 1 June 2023)

Reference:

https://www.mof.gov.ae/en/resourcesAndBudget/Pages/faq.aspx

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