CORPORATE TAX IN DUBAI, ABU DHABI & UAE
Background and Requirement
- With the implementation of VAT in 2018, the Government’s inclination towards revenue collection from taxation was clear. Now, after introduction of Indirect Tax i.e., VAT in 2018 the Government has finally announced the effective date of introduction of Direct Tax i.e., Corporate Tax in UAE from 1st June 2023.
- The introduction of Corporate Tax was required to strengthen the UAE position as leading global hub for business and investment.
- It was also required for accelerate the UAE’s development and transformation to achieve its strategic objectives.
- Moreover, there are many other GCC Countries in the region where Corporate Tax has been introduced and with the commitment to meeting the international tax standards for tax transparency and preventing harmful tax practices led UAE to introduction of Corporate Tax by adhering competitive international practices.
The effective date has been finalized as accounting year starting on or after 1st June, 2023. Accordingly:
a) A business that has a financial year starting on 1st July, 2023 and ending on 30 June 2024 will become subject to UAE CT from 1st July, 2023.
b) A business that has a (calendar year) financial year starting on 1st January, 2023 and ending on 31st December, 2023 will become subject to UAE CT from 1st January, 2024.
- The UAE CT is a Federal tax and will apply across all Emirates.
- UAE CT will apply to all UAE businesses and commercial activities excluding the extraction of natural resources will remain subject to Emirate level corporate taxation. The foreign entities and individuals carrying on trade or business in and ongoing or regular manner shall also be subject to UAE Corporate Tax.
- Individual’s salary and other employment income has been kept out of the scope of UAE CT. Further, Interest and other income earned by an individual from bank deposits or saving schemes will not be subject to UAE CT.
- Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from UAE CT.
- UAE CT will generally not be levied on a foreign investor’s income from dividends, capital gains, interest, royalties and other investment returns.
- Qualifying intra-group transactions and reorganizations will not be subject to UAE CT provided the necessary conditions are met.
- Free zone businesses will be subject to UAE CT, but the UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE.
- Information on any other UAE CT exemptions and exclusions will be provided in due course
- The taxable income will be the accounting net profit / income of a business, after making adjustments for certain items to be specified under the UAE CT law. The UAE CT rates shall be:
1 – 0% for taxable income up to AED 375,000
2 – 9% for taxable income above AED 375,000
3 – A different tax rate for large multinationals i.e., multinationals having consolidated global revenue exceeding EUR 750 million (AED 3.15 billion), that meet specific criteria set with reference to ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project.
- The UAE CT regime will allow a business to use losses incurred w.e.f. the UAE CT effective date for that business, to offset taxable income in subsequent financial periods.
- A UAE group of companies can elect to form a tax group and be treated as a single taxable person subject to certain conditions to be provided in this regard. Further, the tax losses from one group company may be used to offset taxable income of another group company, provided certain conditions are met. Also, a UAE tax group will only be required to file a single tax return for the entire group.
- UAE withholding tax will not be applicable on domestic and cross-border payments of any nature under the UAE CT regime.
- Foreign CT paid on UAE taxable income will be allowed as a tax credit against the UAE CT liability.
- UAE businesses will need to comply with transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing Guidelines.
Other Important Aspects
• Only one CT return will need to be filed per financial period.
• The CT return will need to be filed electronically.
• UAE businesses will not be required to make advance UAE CT payments.
• Businesses will be subject to penalties for non-compliance with the CT regime.
As UAE is a big global business and investment hub where till now there is no tax on income, the possible implications of UAE CT needs to carefully evaluated by all stakeholders for its impact on their business and income.
TRC Pamco offers the followings to businesses and persons having possible impact on the introduction of UAE Corporate Tax (CT):
1. Review of current business structure.
2. An in-depth analysis of possible impact on all streams of activities undertaken by the business person or entity.
3. Suggestions and recommendations on strategic alignment of business structure for optimization of tax efficiency.
4. Submission of draft report on the basis of review of structure, in-depth analysis of impact and recommendations.
5. Engagement with management for discussion on optimal structure and finalization of best possible tax efficient structure considering the business aspects and requirement.
6. Providing continuous support for compliance and advisory to assist the business on the UAE CT matters.