Corporate Tax

On January 31, 2022, the UAE announced the introduction of Corporate Tax (CT), which will be effective for financial years starting on or after June 1, 2023. The details of the new CT regime have been outlined in a press release and a set of Frequently Asked Questions (FAQs) provided by the Ministry of Finance (MOF).

Key Features of UAE Corporate Tax (CT)

1. Effective Date

• The Corporate Tax will apply to financial years beginning on or after June 1, 2023.
• For businesses with a December year-end, the initial CT period will be from January 1, 2024, to December 31, 2024. CT returns and payments will be due by September 30, 2025.
• For businesses with a March year-end, the first CT period will run from April 1, 2024, to March 31, 2025, with returns and payments required by December 31, 2025.

 2. Progressive Tax Rates

• 0% on taxable income up to AED 375,000.
• 9% on taxable income exceeding AED 375,000. For example, if taxable income is AED 500,000, the 9% rate applies to AED 125,000.
• A potential 15% rate may apply to large multinational corporations where Pillar 2 provisions are relevant (i.e., consolidated group turnover exceeds EUR 750 million), although this rate has not been explicitly stated in the consultation.

3. In-Scope Taxable Persons

• Commercial Activities: Any entity engaged in commercial activities will be subject to CT, with the commercial license serving as the primary criterion for applicability.
• Businesses: All UAE-based businesses, including banks, whether operating in mainland or free zones, and foreign permanent establishments (PEs), will be subject to CT under a commercial license.
• Foreign Entities: Legal entities incorporated outside the UAE but effectively managed and controlled within the UAE will be taxed.
• Partnerships and Joint Ventures:  Limited and general partnerships, as well as other unincorporated joint ventures and associations, will be considered ‘transparent’ for CT purposes, with partners taxed on their share of income.
• UAE Residents: UAE resident legal entities, natural persons, and foreign entities managed from the UAE will be taxed on their worldwide income. Natural persons will be taxed only on income from UAE-based business activities.
• Non-Residents: Non-residents will be subject to UAE CT on income derived from their UAE permanent establishment and income sourced within the UAE.
• LLPs: Limited Liability Partnerships (LLPs) will be taxed similarly to UAE resident companies and will not be treated as ‘transparent.