UAE Corporate Tax

Tax consultants in UAE

Corporate tax is the direct tax that is imposed on a company’s net income or profit. It is a legal obligation that a business owes to the government. The rules of taxes are different in every country depending on the approval of the country’s government. A corporate tax is also called a business profit tax or corporate income tax depending on the country.

In order to implement the OECD’s Two-Pillar Approach to reform its International Tax Framework, the United Arab Emirates (“UAE”) have (among 137 other countries) agreed to implement a minimum Corporate Tax rate starting 2023, while following the OECD’s Two-Pillar Approach to reform its International Tax Framework.

Following this development, on 31 January 2022, the Ministry of Finance of the UAE announced the introduction of a Federal Corporate Tax regime on business profits effective for Financial Years starting on or after 1 June 2023. Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses. Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions. A competitive Corporate Tax regime based on international best practices will cement the UAE’s position as a leading global hub for business and investment, and accelerate the UAE’s development and transformation to achieve its strategic objectives. Introducing a Corporate Tax regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices. The UAE is set to witness a growth spur in tax consultants in UAE in the coming years. The UAE Corporate Tax regime will become effective for financial years starting on or after 1 June 2023.

Entities with activities in the UAE (both offshore and onshore) will need to evaluate the impact of UAE Corporate Tax on their transactions including cross-border transactions and entity structure and ensure compliance with the new UAE Corporate Tax requirements. The introduction of corporate tax in the UAE will be followed by the introduction of transfer pricing rules and regulations in the UAE. Para 7.12 of the UAE corporate tax public consultation document requires that “a business will also need to maintain a master and local file (with format and content consistent with the requirements prescribed under OECD BEPS Action 13) where the arm’s length value of their Related Party transactions exceeds a certain threshold in the relevant tax period”.

Corporate Tax Rate in UAE
  • Taxable income not exceeding AED 375,000 – 0%
  • Taxable income exceeding AED 375,000 – 9%
Entities Exempted from Corporate Tax

The following entities are exempted from Corporate Tax:

  • Companies involved in the mining or exploitation of natural resources in UAE.
  • Income earned by an individual in a personal capacity and not considered as a business activity.
  • Companies that are owned wholly by the government in UAE.
  • The government of the Emirates and UAE Federal Government, their authorities, departments and institutions are exempted from corporate tax.
  • Upon the approval of the Ministry, the charities and public benefit organization are exempted.
  • Upon meeting certain requirements, the Regulated Investment Funds and Real Estate Investment Trusts can apply to FTA to be exempted from corporate tax.

The new Corporate Tax will become effective in fiscal years beginning on or after June 1, 2023.