- Taxes are the main source of revenue for most countries that generally helps governments to generate additional revenue and fund public expenditure. However, there is a major difference between direct taxes such as corporate tax and indirect taxes like VAT. While the implementation of VAT tax was a popular choice that did not represent a direct cost to businesses, the implementation of corporate tax puts an end to historically enjoyed zero income tax on business profits.The Ministry of Finance (MOF) announced that the federal corporate income tax (CIT) regime will be introduced in the UAE and applied for fiscal years starting on or after 1 June 2023.The action is stemming from UAE's desire to meet international tax standards, following similar steps taken in neighboring Gulf states. However, it will have one of the lowest corporate tax rates and an extensive double tax treaty network which will cement the UAE's position as a world-leading hub for business and investment.The CIT regime will have the following main features (once enters into full force):Rates
- 0% rate on taxable income up to AED 375,000 (c. US$ 102,000)
- 9% rate on taxable income above AED 375,000
- a different rate for large multinationals that generate consolidated global revenues above AED 3.15 bn
Income Exemptions- extraction of natural resources, which will remain subject to the Emirate-level corporate taxation
- foreign entities and individuals who do not conduct a trade or business in the UAE on an ongoing or regular basis
- foreign investors' income from dividends, capital gains, interest, and other investment returns
- dividends and capital gains earned by a UAE business from its qualifying shareholdings
- qualifying intragroup transactions and restructurings
Other- foreign CIT paid on UAE taxable income will be allowed to be credited against UAE payable CIT
- the CIR regime will allow businesses to use losses incurred to reduce taxable income for subsequent financial periods
- UAE group of companies will be able to elect to form a tax group and be treated as a single entity for taxation purposes, being able to file a single tax return for the entire group
- UAE businesses will also have to comply with transfer pricing rules and documentation requirements based on the OECD transfer pricing guidelines
Note that the relevant CIT legislation is still being finalized and may ultimately diverge from MOF's announcement.
Do not hesitate to reach out to Palladium Group for any advice or guidance on the potential impact of CIT on your organization and operations in the UAE.Call/WhatsApp us on +971 50 908 1938 or email us on support@palladiumgroup.ae
The Introduction Of The First-Ever Corporate Tax In UAE
