UAE to enforce Corporate Tax from 2023

HLB HAMT Management Consultancy (HHMC) Team

The Ministry of Finance of the United Arab Emirates (UAE) stated on January 31, 2022 that the corporate tax will materialise next year, and will be applicable to earnings earned in financial years beginning on or after June 1, 2023. Corporate tax is being implemented for the very first time in the UAE’s history.

The new tax system has a 9 percent basic statutory tax rate as well as a 0% rate for taxable profits up to 375,000 dirhams. This strategic shift is in line with the country’s objective of diversifying its revenue streams and reducing its reliance on oil, which has long been the economy’s bedrock. The UAE Federal Tax Authority will be in charge of managing, collecting, and executing corporate tax in accordance with the policies and guidelines.

All UAE firms and commercial activity conducted by legal organisations or people across emirates will be subject to the corporate tax. All operations carried out by a legal entity are considered “business activities” and are subject to the corporate tax framework. The federal corporate tax will apply to businesses formed in the UAE’s free zones. However, it appears that such businesses will continue to benefit from relevant tax cuts and subsidies in the way and for the term specified by the relevant free zone authority’s legislative framework. A company formed in the Dubai International Finance Centre (DIFC) or the UAE Global Market (ADGM) is entitled to a zero tax rate under DIFC and ADGM regulations.

The following are the corporate tax rates:

For taxable income up to AED375,000, there is no tax.
A 9% tax rate applies to taxable income over AED375,000.

NON – Taxable Income & Exemptions

Salary or job income determines an individual’s earnings.
There will be no withholding taxes on domestic and cross-border payments.
Individuals who possess shares or other assets in their personal capacity and earn dividends, capital gains, and other types of income.
Companies that exploit natural resources and commercial activity
Interest and other revenue earned by individuals through bank accounts or savings plans
Qualifying shareholdings of a UAE corporation produce dividends and capital gains.
Qualifying intra-group transfers and reorganizations
Individuals can invest in real estate in their personal capacity if they do not need a business license or permit to do so in the UAE.

Foreign Individuals

Only foreign firms and people that engage in continuous or regular trade or commerce in the UAE will be subject to corporation tax.
Furthermore, dividends, capital gains, interest, royalties, and other investment returns received by a foreign investor will not be subject to corporation tax.

Conclusion

The United Arab Emirates has long promoted itself as a welcoming place for foreign investors and enterprises. Many inhabitants of UAE are foreigners who have relocated to the Gulf economic powerhouse for the prospects for wealth, career and, obviously, no taxes. The introduction of a corporate tax in UAE will likely affect business operations, formations, and future acquisitions in the UAE. We urge enterprises to evaluate their current strategies, and practices in order to implement the most efficient company frameworks and concepts once the corporate law is enacted and in force.

If you have any queries regarding the proposed corporate tax structure, HLB HAMT Management Consultancy (HHMC)’s experts, who have years of knowledge and expertise, would be delighted to assist.