With the aim of modernizing its economy and adapting to international taxation norms, the United Arab Emirates (UAE) has announced the introduction of Federal Corporate Tax (CT), effective from financial years commencing on or after 1 June 2023.
Corporate tax is a tax on the profits of a corporation or business. CT will be applicable to all businesses across all Emirates in the UAE and will be administered by the Federal Tax Authority. A business is defined as a separate legal person requiring a license or permit to carry out the relevant commercial, industrial or professional activity in the UAE.
The CT rate will be 9% on taxable profits above AED 375,000 with a different tax rate, yet to be announced, for large multinationals that meet criteria set with reference to 'Pillar Two' of the OECD Base Erosion and Profit Shifting project.
CT will be levied on the tax profits after minimal adjustments to profits reported in financial statements prepared in accordance with internationally accepted accounting standards.
Free Zone treatment
Businesses established in Free Zones will be within the scope of CT. However, any tax benefits or incentives offered by Free Zones will continue to apply provided the businesses comply with all regulatory requirements and do not conduct business in mainland UAE.
Other key exceptions
- Oil and gas companies will continue to be taxed under the Emirate level Corporate Tax.
- CT will not be applicable on salary, capital gains, employment income, income from real estate, income from savings, investment returns, and other income earned by individuals in their personal capacity that is not attributable to a UAE trade or business.
It is proposed that the CT return will be filed annually for each financial period without a requirement for advance CT payments based on provisional tax returns.
UAE group companies can form a tax group and file a single tax return for the entire group. It will also be possible to transfer tax losses to other members of the group. Furter, foreign taxes may be allowed as set-off from the domestic CT liability, if any; subject to conditions and procedures as may be prescribed by FTA.
The UAE CT regime will include transfer pricing (TP) rules and documentation requirements in line with the OECD TP Guidelines.