What is corporate tax?
Corporate tax is a type of direct tax levied on the net income or profit of corporations and other entities from their operations. In some other jurisdictions, the term “corporate tax” is also used to refer to “corporate income tax” or “business profits tax.”
In January 2022, the Ministry of Finance announced the implementation of a federal Corporate Tax (CT) on business net profits. The tax will become applicable on either July 1, 2023 or January 1, 2024, depending on the business’s fiscal year. CT will be used in all of the emirates.
Objectives of CT:
Scope of CT:
- All UAE-based companies and people conducting business activities under a commercial license
- Corporate tax breaks currently available to free zone businesses will be maintained, provided the free zone business complies with all applicable regulatory requirements and does not conduct business in the mainland UAE.
- Free zone businesses must still comply with certain CIT regime obligations, such as registering and filing a CIT return.
- Companies involved in real estate management, construction, development, agency, and brokerage.
Exemptions of CT:
- Natural resource extraction businesses are exempt from CT because they will continue to be subject to Emirate-level corporate taxation.
- Dividends and capital gains derived by a UAE company from its qualifying shareholdings (i.e., an ownership stake in a UAE or foreign company that satisfies certain requirements to be outlined in the UAE CIT law.
- Qualifying intra-group transactions and reorganizations, subject to the UAE CIT law’s future conditions.
The following corporate income tax rates are proposed to be used:
- 0% for taxable income up to AED 375,000;
- 9% on taxable income in excess of AED 375,000; and
- a different rate (yet to be announced) for large multinationals with consolidated global revenues exceeding EUR 750 million (approximately AED 3.15 billion), in accordance with Pillar Two of the OECD Base Erosion and Profit Shifting (BEPS) project.