U.A.E. Corporate Tax

U.A.E. Corporate Income Tax

The UAE has introduced a federal tax system that is applicable to all businesses and commercial activities operating within the seven emirates.

Overview

Corporate Tax in the UAE

On 31 January 2022, the tax landscape of the region shifted yet again with the United Arab Emirates (UAE), Ministry of Finance (MoF) making the breakthrough announcement that a new federal corporate tax (CT) system will be implemented in the UAE, effective financial years commencing on or after 1 June 2023. Barring Bahrain, the UAE has introduced the lowest corporate income tax rate within the GCC region at a standard rate of 9%.

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Effective Date

The CT will be applicable for financial years starting on or after 1 June 2023.
Any company that adopts a fiscal year starting on 1 June 2023 and ending 31 May 2024 will be subject to CT starting 1 June 2023. The first tax return filing is likely to be due towards the end of 2024.

Any company that adopts a calendar year starting 1 January 2023 and ending 31 December 2023 will be subject to CT starting 1 January 2024 and filing is likely to be due towards mid-2025.

Free Trade Zones

The UAE intends to honor its commitment to businesses registered in Free Trade Zones to the extent that such businesses do not conduct business with mainland shall be subject to zero percent tax (or be exempt as the case may be) until the end of the holiday period. All free zones have to file an annual CT return.

Businesses with presence in both Mainland UAE and Free Trade Zones as well as those operating under the dual license scheme should consider the impact on their operating model.

Tax

Scope of the CT

The UAE has introduced a federal tax system that is applicable to all businesses and commercial activities operating within the seven emirates. However, there are certain exceptions:

Businesses operating in the extraction of natural resources. These will continue to be subject to the tax decrees issued by the respective Emirate.
Individuals earning income in their personal capacity (i.e. salary, investment income) as long as the income generating activity does not require a commercial license.
Businesses registered in Free Trade Zones, provided they comply with all the regulatory requirements, and that do not conduct business with Mainland UAE.

It is interesting to note that the foreign Banking sector, which has been operating under the Emirate level Bank tax decree will now be subject to the UAE Federal Tax Law. The impact of CT on the Emirate level banking tax decree will be communicated in due course. This will be a significant shift for both branches of foreign Banks, that will need to switch to the new Law and for local banks who similar to other businesses will now be subject to corporate tax.

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