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Corporate Tax implementation in the UAE

UAE authorities have announced the implementation of corporate tax in the country from next year. The decision came out as a surprise to the business community as it was surprising news to them. Many businesses in the UAE have enjoyed zero income tax on their profits which will now change from June 2023. Previously, UAE has already introduced VAT, Economic Substance Regulation (ESR), Excise tax and Country by Country reporting. However, Corporate Tax (CT) will also play a significant role in the evolution of the UAE tax regime. 

The decision came into the consideration of UAE authorities to meet the international standards, by implementing similar decisions to their neighbouring Gulf countries. Also, the UAE wanted to modernise their business environment and boost their economy. Moreover, UAE aims at minimising the compliance burden for startups and small businesses in the country. 

Let’s look at some important points regarding implementation and process of corporate tax in the country;

• – The corporate tax regime will be effective for fiscal years starting from or after June 1, 2023.
• – UAE has implemented 9% CT on taxable income above AED 375,000. As for larger multinationals, different CT rates will be applied (will be announced by MoF) that generate consolidated global revenues above  EUR 750m in line with the Pillar Two of the OECD Base Erosion and Profit Shifting (BEPS) project.
• – Ministry of Finance may announce any further relaxations related to Small, Medium and Micro Enterprises

Exemptions of CT:

• – Natural resources are exempted from the corporate tax and will be taxed under Emirate level as before. 
• – Foreign individuals and entities who don’t operate business in the UAE regularly will not be charged with CT.
• – Income of foreign investors generated from dividends, capital gains, interest, royalties and other investment returns.
• – There will be no withholding tax on domestic and international level

Businesses should in advance prepare for CT by conducting a review of their entity structure, accounting system and processes, financial model, and conduct audits. Certainly, the introduction of CT will have an impact on the tax compliance and costs of most UAE businesses.  Therefore, it is imperative for businesses to understand the tax implications and make any necessary changes in corporate structure, financial model , reporting system to ensure compliance with the new UAE CT regime.