Introduction of Corporate Tax in the United Arab Emirates
In the past couple of years, UAE has gone through significant changes in the tax system to modernize and cope with the international best standards. UAE has taken wide steps to enhance tax transparency long before by introducing various laws. One of them was the Value Added Tax (VAT). The main objectives of the UAE CT are that it will boost UAE’s position as a world-leading hub for business and investment, accelerate the growth and transformation to achieve its strategic objectives, and meet the international standards for tax transparency and prevent harmful tax practices. To enhance international standards, the introduction of corporate tax will become an effective tool in preventing harmful tax practices. The UAE CT regime will become effective for financial years starting on or after June 01, 2023.
According to the law, UAE corporate tax will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate-level corporate taxation. Corporate tax is a direct tax levied on the net income or profit of the corporate entities and other businesses for trade or business in the UAE CT will not apply for free zone entities that do not conduct business activities in the UAE mainland. And the most important thing to notice is that CT will not apply an individual’s salary and other employment income.
Here we go with the UAE Corporate Tax rates:
- 0% for taxable income up to AED 375,000
- 9% for taxable income above AED 375,000 and
- A different tax rate for large multinationals that meet specific criteria set concerning ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project.
Similar to other taxes in UAE, businesses that fail to comply with the CT regime will be subject to penalties. Further details on exemptions and exclusions from CT will be released in due course. Only one CT return will need to be filed per financial period.
The main sources of revenue for most countries are taxes. Taxes generally help the Government to generate additional revenue. And it makes the country more systematic, hence it will lead to preventing harmful tax practices. This introduction of a competitive CT regime based on globally-wide best practices will boost the position of the UAE as a major hub for investments and operating businesses. This will help to accelerate the growth and transformation to achieve its strategic objectives.
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