On 9 December 2022, the Ministry of Finance released the Federal Decree-Law No. 47 of 2022. ‘Taxation of Corporations and Businesses’ in the public domain. The corporate tax (CT) law guides regarding different aspects of corporate tax and its implications on UAE businesses. A cabinet decision is awaited to provide further details regarding the UAE corporate tax and its exact implications on businesses.
Imposition of UAE Corporate Tax
Under the Federal Decree-Law No. 47 of 2022, corporate tax law shall be applicable only to taxable net profit made by juridical persons and businesses.
Corporate Tax Rates
- UAE businesses shall be subject to the following CT rates:
- 0% – for taxable income up to AED 375,000
- 9% – for taxable income exceeding AED 375,000
- Qualifying Free Zone Persons shall be subject to the following CT rates:
- 0% – if income does qualify (qualifying income)
- 9% – if income does not qualify
The term “Qualifying Income” refers to any income derived by a Qualifying Free Zone Person. Moreover, it is subject to CT at the rate set forth in Clause 2 of Article 3 of corporate tax law.
The Federal Tax Authority of the UAE is responsible for collecting corporate taxes. The figure of AED 375,000 above is subject to confirmation by Cabinet Decision.
Who is Taxable?
Taxable Persons are categorized as Residents and Non-Residents.
Residents: Jurisdictionally based person (company) that is effectively managed and controlled within the State. (including Free Zone Persons)
A foreign juridical person that is effectively managed and controlled in the State.
- Natural persons conducting business in the state
- Cabinet’s decision may specify any other person upon the Minister’s suggestion
- Establishes a permanent presence in the state
- Sources income from the state
- The company has a nexus with the state
The state shall treat a branch similarly to a Taxable Person.
Who are Exempt Persons?
- A Government Entity
- A Government Controlled Entity
- A Person engaged in an Extractive Business that meets the conditions of Article 7 of this CT law
- A person engaged in a Non-Extractive Natural Resource Business that meets the conditions of Article 8 of this CT law
- A Qualifying Public Benefit Entity under Article 9 of this CT law
- A Qualifying Investment Fund under Article 10 of this CT law
- A public pension or social security fund, or a private pension or social security fund that is subject to regulatory oversight of the competent authority in the State and that meets any other conditions that the Minister may prescribe
- A juridical person incorporated wholly owned and controlled by an Exempt Person
Base of Taxation
Resident natural persons of UAE are subject to CT whether they derive their income from business activity within or outside the country
UAE corporate tax return is payable by a Non-Resident Person on the following:
- Taxable income attributable to the permanent establishment
- Any other income sourced in the UAE
- Taxable income attributable to the nexus of the Non-resident in the UAE
UAE Corporate Tax Registration and Recordkeeping
The taxable person shall register for corporate tax and obtain a CT registration number within the applicable time frame. To qualify for CT exemption, exempt persons or unincorporated partnerships must be first registered.
When someone becomes a Taxable Person, the Authority can register them for CT at their discretion, depending on the information they have at their disposal.
The Taxable Person is responsible for maintaining all records and documents for seven years after the end of the Tax Period to which they pertain.
How can we Help?
Many UAE businesses will face a difficult journey across unfamiliar terrain as they prepare for, and comply with, the new federal corporate tax. Despite much ambiguity, UAE corporate tax will affect business plans, strategies, and legal agreements.
As your local experts, we know what you can expect from the final law and how it will affect the operation of your entire business. Taking advantage of tax relief is one of the most important things your UAE business can do to survive and thrive. And Creative Zone Tax & Accounting can certainly help with that!
Write to us at [email protected] for a quick consultation with our experts!