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Corporate Tax in the UAE: Your Queries and Our Answers

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Corporate Tax in the UAE: Your Queries and Our Answers

Corporate-Tax-Feb-18

To put it simple, corporate tax is imposed on business profits. The government of the UAE has declared 9% federal corporate tax for the first time. Like many other governments of the world, it is being introduced to comply with the standards of international tax by the Organization for Economic Cooperation and Development (OECD). After the declaration of multiple relaxations by the government this one adds to an effort of diversifying the source of revenue by the government. It will also create credibility and transparency amongst the foreign investors.

This is also an attempt to transform the UAE from an oil mining nation to a global business hub. The corporate tax regime will come into force from or after 1 June,2023. Let us understand how it will affect the common mass, an entrepreneur, a foreign investor and an employee by studying the following key points.

1. What is Corporate Tax?
Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses.
2. Why is the UAE introducing CT?

A competitive CT regime based on international best practices will cement the UAE’s position as a leading global hub for business and investment, and accelerate the UAE’s development and transformation to achieve its strategic objectives

Introducing a CT regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices
3. When will the UAE CT regime become effective?

The UAE CT regime will become effective for financial years starting on or after 1 June 2023

4. Who will be subject to UAE CT?

UAE CT will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation

5. What will the UAE CT rates be?
The CT rates are:
6.How do you determine the business profit / income that will be subject to UAE CT?
The taxable income will be the accounting net profit of a business, after making adjustments for certain items to be specified under the UAE CT law

The accounting net profit of a business is the amount reported in the financial statements prepared in accordance with internationally acceptable accounting standards

7. Will an individual’s salary income be subject to UAE CT?

UAE CT will not apply on an individual’s salary and other employment income (whether received from the public or private sector)in accordance with internationally acceptable accounting standards

8. Will an individual who invests in UAE real estate be subject to UAE CT?

The investment in real estate by individuals in their personal capacity should not be subject to UAE CT provided the individual is not required to obtain a commercial license or permit to carry out such activity in the UAE

9. Will an individual be subject to CT on investment returns?

Individuals will not be subject to UAE CT on dividends, capital gains and other income earned from owning shares or other securities in their personal capacity

10. Will any income be exempt from UAE CT?

Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from UAE CT

11. What is a ‘qualifying’ shareholding?

A qualifying shareholding refers to an ownership interest in a UAE or foreign company that meets certain conditions to be specified in the UAE CT law

12. Will intra-group transactions be exempt from UAE CT?

Qualifying intra-group transactions and reorganizations will not be subject to UAE CT provided the necessary conditions are met

13. Will a free zone business be subject to UAE CT?

Free zone businesses will be subject to UAE CT, but the UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE

14. Will a free zone business be required to register and file a CT return?
A business established in a free zone will be required to register and file a CT return
The key features of the proposed UAE CT regime such as a 0% CT for small businesses and startups, exemptions for UAE based headquarters and international business hubs, no taxation on foreign direct investment, no taxation on personal income, and a minimal compliance burden for businesses should strengthen the UAE’s position as a global hub for business and investment and a leading international financial center.

With a 9% statutory tax rate and exemptions and reliefs the UAE CT regime should remain one of the most competitive in the world. The UAE would also continue to offer the most competitive CT regime in the region, with Egypt, Jordan, Kuwait, Lebanon, Oman, Saudi Arabia and Qatar imposing CT at rates between 10% to 35% (Bahrain currently does not have a broad-based CT regime).

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