The UAE's Ministry of Finance has announced that the country will implement a federal company tax on business profits for financial years beginning on or after June 1, 2023.

The UAE corporate tax policy has been created to reduce compliance costs for firms. With few exclusions and adjustments, corporate tax will be levied on the profits of businesses in the UAE. These exclusions will comply as stated in the companies’ financial accounts prepared in conformity with internationally accepted accounting standards.

The businesses dealing with extraction of natural resources will continue to be subject to Emirate-level corporate taxation. The corporate tax however, will apply to all enterprises and commercial activities.

The UAE corporate tax structure will be among the most competitive in the world, according to sources. The basic statutory tax rate will be 9% and a 0% tax rate for taxable profits up to AED375,000 is set-up to help small enterprises and entrepreneurs.

Personal income from employment, real estate, and other investments, will be exempt from corporate tax. Other forms of income that is not derived from a business or other forms of commercial activity licensed or otherwise permitted to be conducted in the UAE, will be exempt from corporate tax as well.

The Undersecretary of the UAE’s Ministry of Finance, Younis Haji Al Khoori said, "The UAE plays a vital role in helping businesses thrive both locally and worldwide as a leading jurisdiction for innovation and investment. The UAE's position as a world-leading hub for business and investment will be cemented by the certainty of a competitive and best-in-class corporate tax regime, along with the UAE's large double tax treaty network.”

 “The UAE's commitment to fulfilling international standards for tax transparency and avoiding harmful tax practises will be reaffirmed with the introduction of corporate tax. The regime will allow the UAE to address the challenges posed by the global economy's digitalisation as well as other BEPS (Base Erosion and Profit Shifting) concerns. The regime will also support 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", he added.

The UAE’s new corporate tax system would maintain the corporate tax incentives which currently apply to free zone enterprises which meet all regulatory requirements and do not do business with the rest of the UAE. The unchanged corporate tax system for free zones is in recognition of the free zone businesses in the UAE's economy and competitiveness.

The UAE will also not levy ‘withholding taxes’ on domestic and cross-border payments, nor will it levy corporate tax on foreign investors who do not conduct business in the UAE.

A company that has its headquarters in the UAE will be free from paying tax on capital gains and dividends received from eligible shareholdings. Foreign taxes, in such cases will be refunded against the company's UAE corporate tax payable.

The UAE’s new corporate tax system will include extensive loss utilisation provisions, allowing groups of a company in the UAE to be taxed as a single company. Claim group relief for losses, intragroup transactions, and restructurings will also be possible as a single entity.

For enterprises that create and maintain clear financial accounts, the UAE corporate tax framework will ensure that compliance costs are kept to a minimal. Only one corporate tax return would have to be filed by businesses each fiscal year. Making advance tax payments and preparing provisional tax returns would no longer be required by businesses.

With reference to the OECD Transfer Pricing Guidelines, UAE enterprises will be subject to transfer pricing and documentation requirements.

As per the announcement, businesses in the UAE will have plenty of time to prepare for the imposition of corporate tax.

The UAE Ministry of Finance also intends to release more information on the UAE corporate tax regime by mid-year to assist firms in preparing for and complying with the new regime.

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