UAE Corporate Tax Law and what it means for your business

Following the recent news about big changes with the implementation of the EmaraTax portal, yet another milestone has been achieved by the UAE Federal Government - the introduction of the Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses. Although many of the fine details are still not public, we wanted to go over some key points that you should be aware of as you look ahead to 2023.

What is it? Administered by the Federal Tax Authority (FTA), Corporate Tax is essentially a type of direct tax on the net income or profit of businesses. Tax base is an Accounting Income. Accounting income can be adjusted through: unrealised gain/loss, dividends, transactions with related parties, tax losses for previous periods, etc.

At present, the Ministry of Finance has stated that the rates will be:?

• 0 % for taxable income up to AED 375,000 and
• 9 % for taxable income above AED 375,000
• Exemption conditions and income thresholds are yet to be revealed and confirmed

In terms of expenses, the following will not be allowed for Corporate Tax:

• Expenses not incurred for the purposes of business (etc. fines, penalties)
• Losses not connected with the business
• Interest expense - certain rules apply (not allowed for loans from related parties)
• Input VAT

Why has it been implemented? In order to be a competitive economy on a global platform, the UAE has used best practice from international financial systems.? The development of the Law has been a collaborative effort with the Ministry of Finance engaging stakeholders in public consultation to develop the design of the system.? The system is designed to allow the UAE to effectively form partnerships with global entities, attract investment opportunities by maintaining international tax standards and transparency.

When does the Law come into effect? ?The UAE Corporate Tax will become effective from 1 June 2023 for financial periods starting 1 June 2023. However if your financial period is aligned with the calendar year (most common situation), your first tax period will start 1 January 2024 and end on 31 December 2024 meaning that you will have to submit your first tax return by the 30 September 2025 (9 months after the end of the tax period).

Who is affected? Again, specifics are still to come with regards to the criteria and exemptions, however below are some details so far.? Firstly, Corporate Tax will apply to:

• any business/individual with a commercial licence conducting activities in the UAE including real estate, construction and brokerage activities;
• free-zone companies - if taxable income is NOT qualifying, a 9% rate will be applicable on that income (definition of “Qualifying Income” is yet to be revealed!)? Additionally, a qualifying free-zone entity can choose to be subject to Corporate Tax (or not!).

Who is exempt?

While details are not yet confirmed, some of the exemptions we are aware of now are:?

• Companies whose revenue does not exceed the threshold (to be confirmed) - a move designed to encourage small businesses and allow the UAE to attract more start-ups to the region;
• Salaried employee (public and private sectors);
• Bank interest and dividends from personal savings and investments;
• Income of foreign investors from investments such as royalties and capital gains;
• Individual’s personal property portfolio income;
• Corporations in the natural resources extraction industry since they are already subject to the current Emirate level corporate taxation;
• Any capital gains and dividends of a business from shareholders.

So, as we await more details on the regulation in 2023, it is ever so important to ensure that your business is prepared and on top of the changes. Follow our social media channels for new developments. You can also download and read the official document here and get in touch with us if you have any questions. Remember, you can book a free consultation with us to discuss your current business needs, what the changes could mean for your business and how we can support you.

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