On 9 December 2022, the United Arab Emirates (UAE) Ministry of Finance (MoF) released Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (pdf) (Corporate Tax Law or the Law) to enact a new corporate tax (CT) regime in the UAE. The Law been supplemented with 158 Frequently Asked Questions, also released on the same date.
The new CT regime will become effective for accounting periods beginning on or after 1 June 2023. For groups with a December year end, this provides for a 12-month period to prepare and assess the impact ahead of the effective date. However, general anti-avoidance and transitional rules do apply from the date the law is published in the Official Gazette.
UAE Corporate Tax (CT) regime provides for 9% corporate tax on taxable income exceeding AED 375,000 from the financial year starting on or after 01 June 2023. A Resident Person, which is a juridical person, is subject to Corporate Tax on its Taxable Income derived in UAE or from outside UAE, as would be specified.
The Corporate Tax Law can be found at this link
It seems that only natural persons, or those who are UAE residents and engaged in business activity, would be covered by the new taxation rules. In other words, while salary, dividend, etc. is exempt in the hands of an individual, a resident individual carrying business activity in UAE would be subject to CT.
UAE-sourced income (sale of goods, provision of services, interest, income from property, disposal of shares, etc.) could be taxed if the individual qualifies as a non-resident in UAE.
The new taxation rule provides an exemption for businesses operating in Qualifying Free Zone Person (‘QFZP’). However, one has to wait for further clarity on the Qualifying exempt Income. The law also features Transfer Pricing provisions in case of cross-border and domestic related party transactions, accordingly setting up appropriate transfer pricing policies and annual documentation should be considered by businesses.
The law provides that relief from CT may be provided to small businesses basis revenue threshold on an election basis. However, threshold and related conditions are yet to be provided.
the UAE’s development and transformation to achieve its strategic objectives.
Introducing a CT regime also reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices.
The UAE CT regime will become effective for financial years starting on or after 1 June 2023.
● 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 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).
UAE CT applies to juridical persons incorporated in the UAE and juridical persons effectively managed and controlled in the UAE, as well as to foreign juridical persons that have a permanent establishment (see “Foreign persons”) in the UAE (see question 20 ‘Who is considered resident for UAE CT purposes?’).
Individuals will be subject to CT only if they are engaged in a business or business activity in the UAE, either directly or through an unincorporated partnership or sole proprietorship. A Cabinet Decision will be issued in due course specifying further information on what would bring a natural person within the scope of UAE CT.
Yes – the UAE CT does not differentiate between nationality or residence. Juridical persons that are incorporated or resident in the UAE, or that have a permanent establishment in the UAE, will be subject to UAE CT. This applies irrespective of the residence and nationality of the individual founders or (ultimate) owners of the entity.
Yes. The UAE CT is a Federal tax and will therefore apply across all the Emirates.
Businesses engaged in the extraction of the UAE’s natural resources and in certain non-extractive activities that are subject to Emirate level taxation will be outside the scope of UAE CT, subject to meeting certain conditions.
Other businesses may be subject to both CT and Emirate level taxation. Emirate level taxes paid will not be able to be credited against or otherwise reduce the amount of CT payable.
No, CT and VAT are two different types of taxes. Both will continue to apply in the UAE.
No, CT and Excise Tax are two different types of taxes. Both will continue to apply in the UAE.
No, CT and Excise Tax are two different types of taxes. Both will continue to apply in the UAE.
Yes. Applicable service fees will continue to be payable to the relevant Emirate and Federal Governments.
Business set up, license renewal and other Government fees and charges incurred wholly and exclusively in the ordinary course of business are deductible expenses for UAE CT purposes.
In-force International agreements (including international agreements for the avoidance of double taxation) to which the UAE is a party should be considered under the UAE CT regime. In case of a conflict between the Corporate Tax Law and an international agreement with respect to the right to tax a certain item of income, the relevant international agreement may limit the application of UAE CT.
The Federal Tax Authority will be responsible for the administration, collection and enforcement of UAE CT and other federal taxes. For the purpose of the administration, collection and enforcement of CT, the Federal Tax Authority will issue guides, respond to clarifications and provide awareness as required.
The Ministry of Finance will remain the ‘competent authority’ for purposes of bilateral/multilateral tax agreements and the international exchange of information for tax purposes. The Ministry of Finance also has the authority to issue further guidance and implementing regulations for UAE CT and other federal taxes.
To assess what the UAE CT regime means for your business, as a starting point, you should:
The terms “Business” and “Business Activity” as defined in the Corporate Tax Law identify when the activities of certain persons give rise to a UAE CT liability by considering the person to be a taxable person.
“Business” means any economic activity, whether continuous or short term, conducted by any person. It is implied that a business is conducted with a profit motive, and that there is the existence of some system and organisation to the activity conducted. However, a business or business activity for UAE CT purposes does not lose its identity simply because it does not make a profit.
For the application of the Corporate Tax Law to companies and other juridical persons, all activities conducted and assets used or held will generally be considered activities conducted, and assets used or held, for the purposes of a “Business”.
Individuals can earn income from wages and salaries, investments or from practising a commercial, industrial or professional activity, either directly or as sole proprietor of a business. For natural persons, a Cabinet Decision will be issued in due course specifying further information on what would bring a natural person within the scope of UAE CT.
The following persons are exempt from UAE CT, either automatically or by way of application:
UAE incorporated companies such as LLCs, PSCs, PJSCs, and other UAE juridical persons will be subject to CT as resident persons.
An entity that is incorporated in the UAE will automatically be considered a ‘resident’ person for UAE CT purposes. Equally, an individual who is engaged in a business or business activity in the UAE will also be considered a resident person for UAE CT purposes.
A foreign company may be treated as a resident person for UAE CT purposes if it is effectively “managed and controlled” in the UAE. All facts and circumstances must be considered in determining where a company is effectively managed and controlled, but a relevant indicator may include the place where the strategic decisions affecting the business are made.
Under the Corporate Tax Law, a juridical person is considered a non-resident if it is incorporated in a foreign country and is effectively managed and controlled outside the UAE. A natural person is considered a non-resident for UAE CT purposes if he or she is not engaged in a taxable business or business activity in the UAE.
UAE resident juridical persons will be subject to UAE CT on their income source from both the UAE and from abroad, although certain income earned through foreign subsidiaries and income of foreign branches that is subject to tax in another jurisdiction will generally be exempt from UAE CT. Further details of these exemptions are set out under questions 64 ‘Will the income of foreign branches of a UAE business be subject to UAE CT?’ and 88 ‘What is the participation exemption regime?’.
Where income earned from abroad is not exempt, relief for income taxes paid in the foreign jurisdiction can be taken as a credit against the CT payable in the UAE on the relevant income to prevent double taxation. (see below under ‘Tax Credits’).
Non-resident persons will only be subject to UAE CT on:
● income from their Permanent Establishment in the UAE; or
● income sourced in the UAE (subject to a 0% withholding tax).
The taxable income for a Tax Period will be the accounting net profit (or loss) of the business, after making adjustments for certain items specified in the Corporate Tax Law.
The accounting net profit (or loss) of a business is the amount reported in its financial statements prepared in accordance with internationally acceptable accounting standards.
Adjustments to the accounting net profit (or loss) will need to be made for the following items:
Given CT is imposed on an annual basis, it is necessary to specify the “Tax Period”. The Tax Period will normally be the Gregorian calendar year (i.e. from 1 January to 31 December), unless the business applies a different 12-month period for preparing its financial statements.
Applicable CT rate
Individuals and juridical persons
0% for taxable income up to and including AED 375,000
(this amount is to be confirmed in a Cabinet Decision)
9% for taxable income exceeding AED 375,000
Qualifying Free Zone Persons (see further information below)
0% on qualifying income
9% on taxable income that does not meet the qualifying income definition
The CT liability will be calculated as follows:
● Taxable income of AED 375,000 (amount to be confirmed in a Cabinet Decision) subject to CT at 0%: AED 375,000 x 0% = AED 0
● Taxable income exceeding AED 375,000 (amount to be confirmed in a Cabinet Decision) subject to CT at 9%: (AED 1,000,000 – AED 375,000) = AED 625,000 x 9% = AED 56,250
The UAE CT liability for the Tax Period will be AED 0 + AED 56,250 = AED 56,250
The final amount of UAE CT payable can be reduced by available tax credits (see below under ‘Tax Credits’ section).
In addition to a 0% CT rate for taxable income up to and including AED 375,000, small businesses with revenue below a certain threshold can claim ‘small business relief’ and be treated as having no taxable income during the relevant Tax Period and may be subject to simplified compliance obligations. To claim small business relief, an election must be made to the FTA.
Any UAE resident juridical person or individual with revenues below the threshold defined by the Minister and that meets any other conditions that may be set, can claim small business relief.