The UAE government has recently issued a fresh directive aimed at enacting the country’s corporate tax regulations, set to come into effect in 2023. Enterprises will be obligated to remit a standardized rate of 9% beginning June 2023, provided their assessable profits surpass AED 375,000 (equivalent to USD 102,000).
The Ministry of Finance asserts that this corporate tax imposition is aligned with the UAE’s ambitions for growth and transformation. Notably, the stipulated rate stands as the lowest across the Gulf Cooperation Council (GCC) region.
Here is an overview of essential aspects concerning the new corporate tax framework:
1. Applicable Entities:
Corporations registering net profits exceeding AED 375,000 are liable to pay the corporate tax. This encompasses entities located in free zones as well as those operating within the UAE.
2. Exemptions:
Individuals employed by government/semi-government entities and private corporations are exempted from the corporate tax. Additionally, the tax does not apply to personal incomes derived from bank accounts, savings, or real estate investments.
Wholly-owned and controlled subsidiaries of UAE government bodies, pension and social security funds, as well as qualifying investment funds, are eligible for exemptions.
Existing free zone companies can leverage a corporate tax rate of 0% on their earnings.
Furthermore, activities within the domain of natural resources are excluded from the scope of the new corporate tax legislation.
3. Commencement Date:
The new tax regulations are slated to come into effect post June 1, 2023. All enterprises/entities with fiscal years spanning from July 1, 2023 to June 30, 2024, will be subject to the new tax regime.
4. Applicability to UAE-based Businesses Owned by GCC or UAE Nationals:
Entities earning over AED 375,000 annually are subject to the corporate tax. The application of this law pertains to any entity, regardless of the origin or residency status of its founders or owners.
5. Coexistence of Corporate Tax and Emirate-Level Taxation:
Some businesses may find themselves liable for both corporate tax and “Emirate level taxation,” as outlined by the Ministry of Finance. Importantly, taxes paid at the emirate level will not reduce the amount of corporate tax due.
6. Implications for Natural Resource Activities:
Companies engaged in natural resource extraction are exempt from “Emirate-level taxation.” However, specific conditions must still be met by such enterprises.
7. Relationship with VAT and Excise Tax:
Corporate tax and value-added tax (VAT) are distinct forms of taxation that will be separately collected in the UAE. Entities subject to both corporate tax and VAT will need to fulfill their obligations individually. Even those without a VAT registration may still be required to pay corporate tax.
Excise tax, another separate tax category, will continue to be collected by the UAE authorities.
The introduction of this new corporate tax framework heralds a significant change in the UAE’s economic landscape, aligning with its broader goals for development and fiscal sustainability.