UAE to introduce federal corporate tax on business profits from 2023
The UAE Ministry of Finance has set a rate of 9 per cent for taxable income exceeding AED 375,000 / USD 112,110 (USD 1 : AED 3.6725).
The UAE will introduce a federal corporate tax on business profits from the financial year starting on or after June 1, 2023, its Ministry of Finance has said.
The corporate tax has been set at a standard statutory tax rate of 9 per cent. However, a zero per cent tax rate will be applicable on taxable profits up to AED 375,000, in an attempt to support small businesses and startups.
No corporate tax will apply on personal income from employment, real estate and other investments, or on any other income earned by individuals that does not arise from a business or other form of commercial activity licensed or permitted to be undertaken in the UAE.
The corporate tax will be payable on the profits of UAE businesses as reported in their financial statements, prepared in accordance with internationally acceptable accounting standards, with minimal exceptions and adjustments.
The corporate tax will apply to all businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to emirate-level corporate taxation. The new tax regime will also continue to honour the corporate tax incentives currently offered to free zone businesses that do not conduct business within mainland UAE.
The UAE will reportedly not impose withholding taxes on domestic and cross border payments, or subject foreign investors who do not carry-on business in the UAE to corporate tax. Furthermore, as an international headquarter location, a UAE business will be exempt from paying tax on capital gains and dividends received from its qualifying shareholdings, and foreign taxes will be allowed to be credited against UAE corporate tax payable.
The new corporate tax regime will reportedly have “generous loss utilization rules” and will allow UAE groups to be taxed as a single entity or to apply group relief in respect of losses and intragroup transactions and restructurings.
The ministry added that UAE businesses will be given time to prepare for the introduction of this new corporate tax, with the ministry expected to provide further information on the new corporate tax in the middle of this year.