On 31 January 2022, the UAE Ministry of Finance (MoF) announced the introduction of a federal corporate tax (CT) in the UAE that will be effective for financial years starting on or after 1 June 2023. UAE CT will be applicable across all Emirates and will apply to all business and commercial activities alike, except for the extraction of natural resources, which will continue to be subject to Emirate level taxation.
● EMPLOYMENT INCOME, INCOME FROM REAL ESTATE, INCOME FROM SAVINGS, INVESTMENT RETURNS, AND OTHER INCOME EARNED BY INDIVIDUALS IN THEIR PERSONAL CAPACITY THAT IS NOT ATTRIBUTABLE TO A UAE TRADE OR BUSINESS;
● DIVIDENDS, CAPITAL GAINS, AND OTHER INVESTMENT RETURNS ARE EARNED BY FOREIGN INVESTORS.
● CAPITAL GAINS AND DIVIDENDS EARNED FROM QUALIFYING SHAREHOLDINGS;
● QUALIFYING INTRA-GROUP TRANSACTIONS AND RESTRUCTURINGS
Key parameters of the new UAE federal corporate law:
● The corporate tax will be applicable on a taxable income above Aed 375,000. Thus, for a taxable income up to Aed 375,000, applicable corporate tax will be 0%.
● The corporate tax rates applicable for income above AED 375,000, include:
● 9% for taxable income above Aed 375,000; and
● The different tax rates for large multinational companies meet certain specific criteria.
● The new tax regime will apply for the first time for the financial year starting from 1 July 2023 and ending on 30 June 2024. However, a business whose financial year starts on 1 January 2023 and ends on 31 December 2023, will become subject to the UAE corporate tax starting from 1st January 2024.
● The Federal Tax Authority (FTA) established in 2016, shall be the government entity responsible for the administration, collection, and enforcement of the corporate tax regime in the UAE. Further, the Ministry of Finance will remain the competent authority for purposes of an international tax agreement, treaties, etc, including the exchange of information for tax purposes.
The UAE CT will be a Federal Tax. It will apply to all businesses and commercial activities (individuals and legal persons) carrying out business activities under a commercial (or freelancer) license in the UAE. However, there is an exception for Entities engaged in the extraction of natural resources which will remain subject to the Emirate level corporate taxation.
What the Businesses Should Do?
(i)From June 1, 2023, businesses operating within the UAE will do so in a tax-administered jurisdiction and each business should ensure that they have a comprehensive understanding of the real picture. Thus, the first step in preparing for the implementation of the federal corporate tax is acceptance of this change.
(ii) Assess the impact of corporate tax and whether their existing tax model and governance are sufficient to address the requirements of the corporate tax regime.
(iii) Identify potential exposures and opportunities to drive tax efficiencies prior to the corporate tax implementation.
(iv)The fourth step is to ensure communication across every level of your organisation’s hierarchy is consistent, constant, and productive.
(v)The final step is ensuring the quality of your data and documentation meets the threshold for compliance. Organizations need to identify gaps in internal and external reporting. Also, they should remove a potential barrier to full compliance once the new federal corporate tax law is introduced.
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