Introduction Of Corporate Tax In The UAE – UAE Corporate Tax 2023
The first quarter of 2022 saw the introduction of new regulations concerning UAE Corporate Tax on business profits which will be effective for the financial years starting 1st June 2023. Until then, businesses in the UAE have and will benefit of the UAE’s 0% corporate tax advantages. Previously and currently, the UAE’s corporate taxes have only been applicable to banks and insurance companies, and companies engaged in the exploration and production of oil and gas. The UAE’s statutory tax rate will be 9% for taxable income exceeding AED 375,000 United Arab Emirates dirhams (approximately $102,000), and 0% for taxable income up to that amount. At just 9% the UAE corporate tax regime will be amongst the most competitive in the world and foreign investors will still have to able to benefit of such competitive tax advantages.
UAE Corporate Tax regime will support investment and headquarters activities and ensure the free flow of capital, trade, financing, and services. With the double tax treaty networks, UAE will be placed further at an advantageous position with a competitive corporate tax rate and this new regulation also strengthens UAE’s position in terms of transparency, implementation of Organisation for Economic Co-operation and Development (OECD) guidelines to ensure that UAE businesses operate with the correct governance and tax structure. The new Corporate Tax regime has been designed to incorporate best practices globally and minimize the compliance burden for UAE businesses. This cements UAE’s position as a global trade hub and allows the country meet the international standards for transparency and preventing harmful tax practices.
UAE CORPORATE TAX RATES FROM JUNE 2023:
9% Corporate Tax rate for taxable income exceeding AED 375000
0% Tax Rate for taxable income up to AED 375000 to support small and medium size enterprise
HOW DOES THE NEW CORPORATE TAX REGIME AFFECT FREE ZONES
Free Zone (including financial free zones) businesses in UAE will be subject to Corporate Tax. However, it has been clarified that the Corporate Tax regime will continue to honour the corporate tax incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business in mainland UAE.
HOW DOES THE NEW CORPORATE TAX REGIME AFFECT FOREIGN PERSONS
Foreign entities and foreign individuals will be subject to Corporate Tax only if they conduct a trade or business in the UAE in an ongoing or regular manner. Moreover, Corporate Tax will generally not be levied on a foreign investor’s income derived from dividends, capital gains, interest, royalties and other investment returns.
HOW DOES THE NEW CORPORATE TAX REGIME AFFECT THE REAL ESTATE INDUSTRY
Businesses engaged in real estate management, construction, development, agency and brokerage activities will be subject to UAE CIT.
HOW DOES THE NEW CORPORATE TAX REGIME AFFECT TRANSFER PRICING RULES:
Moving forward, Transfer Pricing rules will now be aligned with the OECD Transfer Pricing Guidelines and will require groups of companies to perform benchmarking searches to justify their pricing policies of inter-company transactions.
EXEMPTIONS
The following categories of income will not be subject to New UAE Corporate Tax:
Capital gains.
Dividends received by UAE businesses from qualifying shareholding. A qualifying shareholding refers to an ownership interest in a UAE or foreign company that meets certain conditions to be specified in the UAE CIT law.
Qualifying intragroup transactions and restructurings
Income from the extraction of natural resources (relevant for the oil and gas industry). This income will remain subject to Emirate level corporate taxation
HOW CAN WINCORE ADVISORY GROUP HELP?
Business which are subject to UAE Corporate Taxes will be required to file a Corporate Tax Return for each financial period, effective from June 1st 2023. While the full legislation is yet to be issued and the details for the corporate tax regime are yet to be finalised, this transition period presents an opportunity for businesses to gain ample time to prepare for the introduction of the new UAE Corporate Tax Regime. Our team of Tax Experts can help you in assessing the challenges and opportunities that the introduction of a Corporate Tax will bring.
If you wish to discuss the potential implications of this new corporate tax regime on your business feel free to contact us today on +971 4 443 6694 or contact@wincoreadvisory.com.
Wincore specializes in Tax, Corporate and Fiduciary matters. We provide pragmatic, flexible and efficient solutions to individual entrepreneurs, startup businesses, foreign and local SMEs, multinationals, wealthy international families, HNWIs and UHNWIs.
