UAE Corporate Tax - Overview

The UAE’s Ministry of Finance (MOF) has introduced a new tax system for corporations, individuals engaged in business activities, and other juridical persons with taxable profits exceeding AED 375,000. These entities will be taxed at a flat rate of 9%. The Corporate Tax (CT) will be implemented starting June 1, 2023. Below is an overview of the Corporate Tax law, including its scope, tax rate, and coverage.

Tax Rate

Example:

For a natural person with a taxable income of AED 10 million:

• The first AED 375,000 will be taxed at 0%, resulting in no tax.
• The remaining AED 9,625,000 (AED 10 million - AED 375,000) will be taxed at 9%, resulting in a tax amount of AED 866,250.

Thus, the total CT liability for the period would be AED 866,250.

Coverage

The MOF has issued a Federal Decree-Law on the Taxation of Corporations and Businesses, which includes a negative list of exempt persons:

• Government Entities and Government-controlled entities
• Judicial persons incorporated in the UAE, wholly owned and controlled by a Government Entity or Government-controlled entity
• Extractive businesses and other prescribed non-extractive natural resource businesses
• Qualified Public Benefit Entities and Qualified Investment Funds
• Prescribed public pension or social security funds, or private pension or social security funds
• Other entities as prescribed by the MOF

A person must be either a resident or non-resident to be considered a taxable person as defined in the decree. For instance, a natural person is liable for corporate tax only if the income is earned from conducting business activities in the UAE.

Non-residents will be subject to corporate tax if the income is earned by a Permanent Establishment (PE), sourced from the state, or has a nexus in the UAE.

The MOF also provided a list of exempt income on which CT will not apply, including:

• Dividends and other profit distributions received from a juridical person that is a resident or from a participating interest in a foreign juridical person
• Any other income from a participating interest
• Income derived by a non-resident person from operating aircraft or ships in international transportation

Contact

Our dedicated corporate tax team in the UAE has extensive experience and can support you through the implementation and annual compliance process. If you need assistance, please contact us with your questions.

Written By - Arpit Gandhi

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