On 9th December 2022, the UAE Ministry of Finance implemented the Corporate Tax, a direct tax levied on the net income of corporations and businesses. This tax measure will take effect for financial years beginning on or after 1st June 2023. In other jurisdictions, the Corporate Tax is also known as “Business Profits Tax” or “Corporate Income Tax. “The UAE’s Corporate Tax is set to maintain the lowest tax rate globally, aiming to ease the compliance burden on businesses. This introduction is expected to boost UAE’s revenue and enhance its competitiveness in the global business and investment landscape. Consequently, this move will encourage financial discipline within corporate culture, leading to better record-keeping practices. The proposal to introduce Corporate Tax aligns with the UAE’s commitment to meeting international tax transparency standards while safeguarding the interests of start-ups and small businesses within the country.
Taxable & Exempt Persons
The scope of Corporate Tax in the UAE encompasses various business operations and commercial activities carried out across the emirates. Here is an overview of the entities and activities to which the Corporate Tax applies:
- Businesses and individuals engaged in commercial activities under a commercial license in the UAE.
- Free zone businesses, provided they meet all regulatory requirements and do not conduct business in the UAE mainland. Free zone companies can benefit from Corporate Tax incentives.
- Foreign companies and individuals if their business is effectively managed and controlled in the UAE.
- Banking operations.
- Businesses involved in construction, development, real estate management, agency, and brokerage activities.
Certain entities and activities are exempt from Corporate Tax:
- Automatically exempt:
- Government entities.
- Government-controlled entities specified in a cabinet decision.
- Exempt if notified to the Ministry of Finance and meet certain conditions:
- Extractive businesses.
- Non-extractive natural resource businesses.
- Exempt if applied to and approved by the Federal Tax Authority (FTA) and meet certain conditions:
- Qualifying public benefit entities.
- Public and private pension and social security funds.
- Qualifying investment funds.
- Wholly owned and controlled UAE subsidiaries of government entities, government-controlled entities, qualifying investment funds, or pension and social security funds.
Corporate Tax will not apply to certain situations:
- CT won’t apply to dividends or capital gains earned by a UAE business from its qualifying shareholdings.
- Qualifying intra-group transactions and reorganizations will not be subject to CT, provided specific conditions are met.
Additionally, Corporate Tax will not apply to the following:
- Individual earnings, salary, and other employment income received from the public or private sector.
- Interest and other income earned from bank deposits or saving schemes by individuals.
- Foreign investors’ income derived from dividends, capital gains, interest, royalties, and other investment returns.
- Investment in real estate undertaken by individuals in their personal capacity.
- Dividends, capital gains, and other income received by individuals through their ownership of shares or other securities.