Next in a series of reforms in the UAE is the announcement of ‘corporate tax’, a form of a direct tax on corporations’ net income or profit. In its most recent taxation plan encompassing business activity within the UAE, the UAE Ministry of Finance has announced a corporate tax on business entities within the UAE. This tax will become effective for financial years starting on or after 1 June 2023, giving enough time for businesses to familiarize themselves with the new corporate tax. On perusal of the government announcement, it appears that these are the highlights of the new regime.
- As per the announcement, it is proposed that the tax will be levied at a rate of 9% on all commercial activity, except for natural resource extraction which remains governed by the individual emirates.
- The corporate tax will apply equally to all categories of profits and other net income reported in the financial statements in accordance with internationally acceptable accounting standards.
- A higher tax rate is proposed for large multinationals that meet specific criteria as per the OECD guidelines.
- Keeping in mind small businesses and start-ups, the tax rate will be 0 percent for taxable profits up to AED 375,000.
- The corporate tax incentives offered to Free Zones continue to be in effect, and hence, businesses that do not conduct business with mainland UAE may not be impacted.
- Dividends and capital gains received by a UAE business from its qualifying shareholdings will not be subject to corporate tax.
- No corporate tax will be applied on qualifying intragroup transactions and restructurings.
Further information on this will be released by the UAE Ministry of Finance toward the middle of the year. Accordingly, UAE business entities will have ample time to comply with the new tax regime. We will keep you updated about further developments.
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Dr Laura Voda, Of Counsel
Maquelin Pereira, Paralegal