UAE’s New Corporate Tax: Explained

The UAE is set to introduce a new corporate tax starting from June 2023. Individuals and foreign entities that conduct trade or businesses regularly in the UAE will be subject to the new corporate tax. This article will discuss the below elements of the new corporate law:

1. Structure
2. Objectives
3. Exemptions 

Structure

The corporate tax will apply equally to all categories of profits and other net income reported, which should be reported in financial statements prepared in accordance with internationally acceptable accounting standards. The tax will be applied on the business’ adjusted accounting net profit. 

The corporate tax will be 0% for businesses with a taxable income of up to AED 375,000. This is to continue the UAE’s support of small businesses and startups. A 9% tax rate will be levied on businesses incurring more than AED 375,000 in taxable income.

Objectives

There are three primary objectives for the introduction of the new tax scheme, one of which is to cement the UAE’s position as the world’s leading hub for business and investment. This tax scheme will also accelerate UAE’s development and will help achieve its strategic objectives. According to our very own Business Setup Lead Zille Rehman, the corporate tax will align the UAE with international businesses and to meet international standards for tax transparency.  

Exemptions

All companies operating in the UAE are eligible if they are operating in the mainland. Companies which operate in the free zones and do not do business in the mainland are exempted, along with businesses involved in extraction of natural resources which will remain subject to the Emirate level of corporate tax. “Free zone businesses such as those set up with the DMCC that do not do business with mainland UAE will continue to benefit from the exemption from the corporate tax incentives” comments Zille. Save up to AED 30,000 on Licensing and Registration fees and get a DMCC Free Zone license in only a few weeks with AstroLabs.

Individuals will not be subjected to the corporate tax from real estate, employment or investment in shares. Other personal income which is not related to a UAE trade or business and foreign investors who do not carry on business in the UAE will also not pay corporate tax. 

Corporate tax will also not apply on intragroup transactions and restructuring that qualify certain rules. Additionally, withholding tax will not apply on dividends and capital gains received by a UAE business from its qualifying shareholdings. Additionally, foreign tax will be allowed to be credited against UAE corporate tax payable and loss transfer utilization rules will be available to businesses. 

The Federal Tax Authority has announced that further announcements regarding the new corporate tax are expected.

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