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FREQUENTLY ASKED QUESTIONS ABOUT CORPORATE TAX
What is CORPORATE TAX?
CORPORATE TAX is a form of direct tax levied on the net income or profit of corporations and other businesses. CT is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.
How much is the new corporate tax in the UAE?
The corporate tax in UAE will be 9 percent with some exceptions.
Businesses that have a net income or a taxable income of AED 375,000 or more will be affected by this new tax. Of course, this means that small businesses whose taxable income does not exceed AED 375,000 will have the tax rate remain at 0%.
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. Examples:
● a business that has a financial year starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE CT from 1 July 2023 (which is the beginning of the first financial year that starts on or after 1 June 2023).
● a business that has a financial year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE CT from 1 January 2024 (which is the beginning of the first financial year that starts on or after 1 June 2023).
Who will be subject to UAE CT?
UAE CT applies to juridical persons incorporated in the UAE and juridical persons effectively managed and controlled in the UAE, as well as to foreign juridical persons that have a permanent establishment (see “Foreign persons”) in the UAE (see question 20 ‘Who is considered resident for UAE CT purposes?’).
Individuals will be subject to CT only if they are engaged in a business or business activity in the UAE, either directly or through an unincorporated partnership or sole proprietorship. A Cabinet Decision will be issued in due course specifying further information on what would bring a natural person within the scope of UAE CT.
Who is exempt from Corporate Tax?
Certain types of businesses or organizations are exempt from Corporate Tax given their importance and contribution to the social fabric and economy of the UAE. These are known as Exempt Persons and include:
- Government Facilities
- Government controlled Entities that are specified in a Cabinet Decision
Exempt if notified to the Ministry of Finance (and subject to meeting certain conditions)
- Extractive Businesses
- Non – Extractive Natural Resource Businesses
Exempt if listed in a Cabinet Decision
- Qualifying Public Benefit Entities
Exempt if applied to and approved by the Federal Tax Authority (and subject to meeting certain conditions)
- Public or private pension and social security funds
- Qualifying Investment Funds
- Wholly-owned and controlled UAE subsidiaries of a Government Entity, a Government controlled Entity, a Qualifying Investment Fund, or a public or private person or social security fund.
Will UAE entities owned by UAE or GCC nationals be subject to UAE CT?
Yes – the UAE CT does not differentiate between nationality or residence. Juridical persons that are incorporated or resident in the UAE, or that have a permanent establishment in the UAE, will be subject to UAE CT. This applies irrespective of the residence and nationality of the individual founders or (ultimate) owners of the entity.
Who will be in charge of the new corporate tax?
The Federal Tax Authority (FTA) will be in charge of the administration, collection, and enforcement of the new corporate tax.
Withholding tax is a form of Corporate Tax collected at source by the payer on behalf of the recipient of the income. Withholding taxes exist in many tax systems and typically apply to the cross-border payment of dividends, interest, royalties and other types of income.
Who is subject to Withholding Tax?
Non-resident persons that do not have a Permanent Establishment in the UAE or that earn UAE sourced income that is not related to their Permanent Establishment may be subject to Withholding Tax (at the rate of 0%).
Will UAE CT replace VAT in the UAE?
No, CT and VAT are two different types of taxes. Both will continue to apply in the UAE.
Will I have to pay UAE CT alongside VAT in the UAE?
If you are a registered business for VAT, you will have to pay VAT and CT separately. If your business is not VAT registered you may still have to pay CT.
Will I have to pay UAE CT alongside Emirate level taxes?
Businesses engaged in the extraction of the UAE’s natural resources and in certain non-extractive activities that are subject to Emirate level taxation will be outside the scope of UAE CT, subject to meeting certain conditions.
Other businesses may be subject to both CT and Emirate level taxation. Emirate level taxes paid will not be able to be credited against or otherwise reduce the amount of CT payable.
Will UAE CT replace Excise Tax in the UAE?
No, CT and Excise Tax are two different types of taxes. Both will continue to apply in the UAE.
Will I continue to pay service fees to local and Federal Governments now that the UAE has introduced CT?
Yes. Applicable service fees will continue to be payable to the relevant Emirate and Federal Governments.
Business set up, license renewal and other Government fees and charges incurred wholly and exclusively in the ordinary course of business are deductible expenses for UAE CT purposes.
Will the income gained by a foreign investor come under the new corporate tax?
A foreign investor’s income gained from dividends, interest, royalties, capital gains, and other investment returns will not come under the new corporate tax.
What should I be doing to prepare for UAE CT?
To assess what the UAE CT regime means for your business, as a starting point, you should:
Use the available information to determine whether your business will be subject to UAE CT and if so, from what date.
Understand the requirements for your business under the Corporate Tax Law, including, for example:
- Whether your business needs to register for UAE CT.
- What is the accounting / Tax Period for your business?
- By when your business would need to file a UAE CT return.
- What elections or applications can or should your business make for UAE CT purposes.
- How UAE CT may impact your business’ obligations and liabilities under contracts with customers and suppliers.
- What financial information and records your business will need to keep for UAE CT purposes.