CORPORATE TAX IN THE UAE
On 31 January 2022, the tax landscape of the region shifted yet again with the United Arab Emirates (UAE), Ministry of Finance (MoF) making the breakthrough announcement that a new federal corporate tax (CT) system will be implemented in the UAE, effective financial years commencing on or after 1 June 2023. Barring Bahrain, the UAE has introduced the lowest corporate income tax rate within the GCC region at a standard rate of 9%. The UAE CT regime has been designed to incorporate best practices globally and minimize the compliance burden on businesses.
Frequently Asked Question
The UAE Corporate Tax (CT) applies to all businesses operating within the UAE, with some exceptions. The law is effective for financial years starting on or after June 1, 2023.
The CT is structured with a three-tier rate:
Â
0% for businesses with taxable income not exceeding AED 375,000 or for those classified as eligible free zone entities.
9% for businesses with taxable income exceeding AED 375,000.
A higher rate (expected to be 15%) may apply to members of multinational groups with revenues above EUR 750 million.
Yes, your organization’s entities can consolidate, which offers benefits like reduced administrative burdens and the ability to share losses, helping to lower the effective corporate tax rate. To successfully implement this under the new corporate tax regime, businesses need to adopt processes for compliance and reporting, including understanding transfer pricing and consolidation rules. With the law effective on June 1, 2023, businesses must ensure their systems can capture required information by July 1, 2023, in preparation for their first tax return filing in 2024 or 2025.
Yes, interest paid on both external and internal debt is typically an allowable deduction for corporate tax. However, this is subject to transfer pricing rules, withholding tax regulations, and deduction limitations, which must be carefully considered to ensure compliance.
Related party transactions should reflect the taxable income that would have occurred if the transactions had been conducted under the arm’s length principle, as if they were between unrelated parties. Transactions between entities in different consolidated corporate tax groups with varying tax profiles (such as loss-making entities or those subjected to different effective tax rates) may face increased scrutiny from the Tax Authority due to potential profit shifting to entities with lower tax rates.
When calculating taxable profit, expenses can be deducted as long as they are incurred wholly and exclusively for the business’s operations. One of the key deductions available is for amortization or depreciation of fixed assets.
Corporate tax is generally applied to profits, meaning it is not imposed on entities that are making losses. However, regulations under the corporate tax regime outline how these losses can be utilized or carried forward for tax purposes.
Articles
