Implementation of Dubai corporate tax

corporate tax in Dubai UAE

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.

CT Rate:

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.

Contact TRC Pamco if you need any advice or direction regarding the potential impact of CIT on your company and operations in the UAE; they are experts in Dubai corporate tax.

Corporate Tax in UAE – Everything You Need to Know

uae corporation tax

The UAE is known for its expansive landscape, and with it becoming an international business hub, which was tax-free until now – it’s imperative that the implications of Corporate Tax in Dubai need to be evaluated by all the stakeholders and devise a constructive way forward.

Last month, the Ministry of Finance in the UAE introduced a 9% Corporate Tax, applicable for financial years starting on or after 1st June 2023. This created quite an uproar, but with effectively managing compliance responsibilities, developing plans, and proactively managing risks – the implications can be handled well.

The Corporate Tax Rates will be 0% for taxable income up to AED 375,000, 9% for taxable income above AED 375,000, and a different tax rate for larger multi-nationals having a consolidated revenue exceeding EUR 750 million, and that meet the criteria set based on ‘Pillar 2’ of the OECD Base Erosion and Profit Shifting Project.

It will also allow businesses to use losses incurred with effect from the Corporate Tax effective date for any business, to offset the taxable income in subsequent financial periods. It will also allow tax credit against UAE Corporate Tax liability if the Foreign Corporate Tax is paid on UAE taxable income.

If you are wondering about the risks to your business, and need a more detailed understanding – it’s best to get in touch with TRC Pamco, one of the leading accounting and taxation firms, providing Corporate Tax Services in the UAE – and they can help you maximize opportunities by:

  • Reviewing your current business structure
  • Conducting an in-depth analysis of the possible impact on all the activities undertaken by your business
  • Suggesting a strategic alignment to optimize it for tax purposes
  • Engaging with management on the optimal structure for your business and devising a prudent and tax-efficient structure considering your requirements.

Get in touch with TRC Pamco today!