It is high time for businesses to get ready for corporate tax in UAE. The tax haven for the world is on its way to achieving some incredible feats and offering multiple unique values to businesses contributing to the economy of the UAE.
The Ministry of Finance is dedicating its invaluable time and resources to draft an FCTBT (Federal Corporate Tax On Business Profits). The bill is for the financial year starting on or after 1st June 2023.
The Purpose of UAE Corporate Tax:
The regime of this bill has been drafted to achieve three feats mentioned below:
- Incorporation of the best business practices worldwide.
- Minimization of compliance burden on businesses.
- Support small businesses and startups
Some Specification of UAE Corporate Tax:
- It will apply to the profits of UAE businesses.
- Businesses will be taxed on profits as reported in their financial statements.
- These financial statements must be prepared according to the IAAS (Internationally Acceptable accounting standards) and with minimal exceptions and adjustments.
- Businesses will be taxed on all commercial and business-related activities.
- Businesses related to the extraction of natural resources will not have to pay the corporate tax. They will remain subject to ELCT (Emirates Level Corporate Taxation).
- 9 percent standard statutory tax rate.
- 0 percent tax rate on profits falling under the taxable bracket. The amount could be up to AED375,000.
- Personal income from employment, income from investment in real estate, and other things/industries have been exempted from this tax.
- Any income earned by individuals from a business or any type of commercial activity licensed or otherwise permitted to be undertaken in the United Arab Emirates has also been exempted from this tax.
- Corporate tax incentives being offered to free zone businesses fully complying with all regulatory requirements will continue.
- Companies not operating business with Mainland, UAE will also continue receiving Corporate Tax Incentive.
- Withholding taxes on domestic and cross-border payments will not be imposed.
- Foreign investors not carrying on business in the UAE will not be subjected to corporate tax.
- Businesses will not have to pay tax on capital gains and dividends received from their qualifying shareholdings.
- Foreign taxes can be allowed to be credited against the amount of the United Arab Emirates corporate tax subject to payment.
- Generous Loss Utilisation Rules.
- UAE Groups can be taxed as a single entity.
- UAE Groups can apply for group relief in respect of the following:
- intragroup transactions.
- Insurance of minimum corporate compliance burden for businesses held in high esteem for preparing and maintaining adequate financial statements in line with internationally accepted accounting standards.
- Businesses will not be ordered to file more than one corporate tax return each financial year.
- Businesses will also not have to make advance tax payments.
- Businesses will not have to worry about preparing provisional tax returns.
- As far as Transfer pricing and documentation requirements are concerned, UAE businesses will have to fulfill relevant requirements specified in OECD Transfer Pricing Guidelines.
“As a leading jurisdiction for innovation and investment, the UAE plays a pivotal role in helping businesses grow, locally and globally. The certainty of a competitive and best-in-class corporate tax regime, together with the UAE’s extensive double tax treaty network, will cement the UAE’s position as a world-leading hub for business and investment. The United Arab Emirates reaffirms its commitment to meeting international standards for tax transparency and preventing harmful tax practices with the introduction of corporate tax. The regime will pave the way for the UAE to address the challenges arising from the digitalization of the global economy and the other remaining BEPS [Base Erosion and Profit Shifting] concerns, and execute its support for the introduction of a global minimum tax rate by applying a different corporate tax rate to large multinationals that meet specific criteria set with reference to the above initiative,” said Mr. Younis Haji Al Khoori, Undersecretary of the Ministry of Finance.
The bill will en route the UAE towards the achievements of its strategic ambitions in the best possible way. It will be an effective medium of incentivization required to motivate businesses for their establishment and expansion of corporate activities in the UAE,” said Mr. Younist Haji Al Khoori.
UAE businesses will have ample wealth of time to gear up for the corporate tax in UAE.
Businesses expecting further information about it will have to play the waiting game till the middle of the year. The Ministry of Finance has advised businesses to be ready and fully compliant with the UAE corporate tax.
You can seek further information about it on the official website of the Federal Tax Authority.