The UAE Ministry of Finance has just announced the introduction of a federal corporate tax from the financial year starting on or after June 1st 2023.
A standard statutory tax rate of 9 percent will apply to profit generated by businesses in UAE.
Foreign taxes paid will be credited against any payable UAE corporate tax meaning there will be no double taxation.
To support small and medium size enterprises there will be a zero tax rate for taxable profits up to 375,000 AED.
“As a leading jurisdiction for innovation and investment, the UAE plays a pivotal role in helping businesses grow, locally and globally. The certainty of a competitive and best in class corporate tax regime, together with the UAE’s extensive double tax treaty network, will cement the UAE’s position as a world-leading hub for business and investment”, said Younis Haji Al Khoori, Undersecretary of the Ministry of Finance.
He added: “The regime will pave the way for the UAE to address the challenges arising from the digitalisation of the global economy and the other remaining BEPS [Base Erosion and Profit Shifting] concerns, and execute its support for the introduction of a global minimum tax rate by applying a different corporate tax rate to large multinationals that meet specific criteria set with reference to the above initiative.”
According to information available on the MoF website, there will be no tax on personal incomes “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 otherwise permitted to be undertaken in the UAE“.
Businesses involved in oil and gas production will be exempt due to the fact they are already subject to tax at an Emirate level.
Withholding taxes on domestic and cross border payments will not be imposed. Foreign investors who do not carry on business in the UAE will not be subject to corporate tax.
UAE businesses will be exempt from paying tax on capital gains and dividends received from its qualifying shareholdings.
There will be “generous loss utilisation rules” and “UAE groups can be taxed as a single entity or can apply group relief in respect of losses and intragroup transactions and restructurings“.
Will this affect Free-Zone Companies in UAE?
According to the FAQ section on the MoF’s website, Free-Zone businesses will be subject to UAE corporate tax, but the tax regime will “continue to honour the corporate tax incentives currently being offered to Free-Zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE.”
It is unclear right now what this means. Furthermore, how this will affect the financial Free-Zones, Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), remains to be seen.
The legislation has yet to be finalised and some of the details may change. We will keep you updated on any new developments.