UAE Corporate Tax Law: The Key Features and Exemptions

Historically, the UAE has been recognized for its exceedingly low taxation policies. Residents are exempt from personal income tax, and many businesses have been spared from corporate taxes. The lion's share of government income was historically derived from the hydrocarbon sector, with both state-owned and private entities contributing approximately 50% in taxes from their earnings.

Considering the reduced income from traditional energy resources and the rapid economic evolution, the rationale to introduce taxation on the business revenue becomes evident to bolster future development in infrastructure, education, and health services.

UAE Corporate Tax

On 9 December 2022, the UAE released the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses. The CT Law will apply to Taxable Persons for financial years commencing on or after 1 June 2023.

On May 8, 2023, the UAE Cabinet of Ministers enacted Cabinet Decision No. (49), imposing a 9% company tax on particular companies. This degree is perceived as a strategic initiative geared toward broadening the UAE's sales streams while simultaneously upholding its function as a pivotal economic center.

In addition to the corporate tax, the UAE has also announced that large multinational firms with profits of more than EUR 750 million will have to pay a 15% tax – this is in line with the Global Minimum Corporate Tax Rate agreement.

Effective Date: This new corporate tax, set at 9%, will come into play for financial years starting on or after June 1, 2023. Companies must start setting aside money to pay their taxes from that date. Businesses whose tax year begins in January will not have to start paying tax on revenues generated before 1st January 2024.

Who is Eligible to Pay Corporate Tax in the UAE?

• Taxable income up to AED 375,000 is subject to 0% corporate tax in Dubai, UAE
• The UAE corporate tax rate is 9% for income exceeding AED 375,000
• Multinational corporations that fall under Pillar 2 of the BEPS 2.0 framework and are subject to OECD Base Erosion and Profit-Sharing laws will be subject to a 15% corporate tax rate. This applies to corporations with combined worldwide revenues exceeding AED 3.15 billion.

Navigate the key features of the UAE Corporate Tax Law:??

• The lowest Corporate Tax Rate of 9% regionally and one of the lowest worldwide.?
• Tax-free income up to USD 100,000 (AED 375,000) for all businesses.
• No tax for small businesses with less than USD 800,000 (AED 3,000,000) revenue?
• ?Extensive Double Tax Agreement network with over 100 countries.?
• Tax-free Restructuring, No tax on assets owned before law implementation, No Transfer Pricing Documentation for businesses with revenue less than USD55,000,000 (AED200,000,000)?
• 0% OECD-compliant corporate tax regime for free zone companies.?
• Optimize Corporate Tax payable and compliance efforts through Tax Grouping.?

Taxable Entities:

In the United Arab Emirates (UAE), diverse kinds of entities and people engaged in financial activities are considered taxable.?Resident Persons:

• Juridical entities incorporated, mounted, or diagnosed within the UAE, or overseas entities managed in the UAE.
• A normal person engaging in commercial enterprise or industrial sports inside the UAE.

Non-Resident Persons:

• Entities or people without resident status that have a permanent establishment in the UAE, derive profits sourced within the UAE or have a nexus inside the UAE as defined through Cabinet Decision.
• Branches of non-resident entities inside the UAE are dealt with as the same taxable man or woman for taxation functions.

The Exemption:

• Entities that are part of the government structure.?Entities under significant government ownership or control.?
• Those involved in the extraction of natural resources are subject to specific criteria.?
• Investment funds that meet predefined eligibility criteria.?
• Entities that serve the public interest and comply with certain conditions.?
• Funds established for pension or social security purposes, adhering to specific requirements.?
• Additional entities or individuals as determined by a Cabinet decision.?

Small Business Relief

This relief is applicable for resident persons (natural and juridical persons) to be treated as not having derived any Taxable Income in the Tax Period. The person's net revenue should be less than or equal to AED 3,000,000 in the current and all previous Tax periods.?

Who cannot elect for the Small Business Relief??

A qualifying free zone person. In addition, members of a multinational group with consolidated group revenue of more than AED 3.15 billion.?

The Importance of Seeking Professional Guidance

Entrepreneurs frequently stumble upon problems while coping with the intricate UAE tax gadget. In light of this, it is strongly cautioned not to forget the worthwhile assistance supplied through skilled tax consultants or chartered accountants, which include Business Link. These professionals possess tremendous know-how and understanding which can navigate the complexities of tax planning, ensure compliance with all pertinent regulations, and improve your business's economic efficiency.

Businesses operating inside the UAE must know about corporate tax. It's also important to know different taxes like VAT and customs obligations. To ensure your enterprise's economic fitness, navigate the tax law and optimize your tax method.

Business Link is your dependable manual for all company tax topics, catering to groups of all sizes. Our expert team will navigate the complexities of the UAE corporate tax legal guidelines, supplying you with tailor-made recommendations and aid. By selecting Business Link, you may optimize your tax strategy and reap your commercial enterprise goals confidently.