Do you have questions about UAE’s corporate tax legislation? Here’s a simplified overview of the main clauses.
OVERVIEW AND APPLICATION
- The Federal Decree-Law No. (47) of 2022 issued on December 9, 2022, for the implementation of Corporate Tax (“CT law”) in the UAE
- CT law effective from June 1, 2023
- Taxable Persons:
- Companies and other juridical individuals incorporated or managed in the UAE
- Individuals conducting a Business or Business Activity here
- Foreign legal entities with a Permanent Establishment in the country
- 9% tax rate applied on the adjusted accounting net profits of a company above AED 375,000 (US$ 102000)
- To be administered, collected and enforced by the Federal Tax Authority (FTA)
CORPORATE TAX EXEMPTIONS
Exempt Entities automatically or by way of application:
- Government entities and government-controlled entities (to be specified)
- Extractive and non-extractive natural resource businesses which meet certain conditions
- Qualifying public benefit entities, such as charities and non-profits
- Qualifying investment funds, such as mutual funds and hedge funds
- Public pension or social security funds
- Private pension or social security funds
Not applicable on/exempt income:
- Natural persons, having
- Employment income
- Carrying business with annual turnover less than AED 1 million
- Income from property investment
- Income from savings
- Investment returns
- Other income not related to UAE trade or business
- Dividends, capital gains, and other investment gains, subject to fulfilment of conditions of Participation Exemption
UAE FREE ZONES
0% tax for qualifying free zone entities on qualifying income, which includes:
- Income derived from transactions with other free zone persons except for excluded activities
- Income derived from transactions with a non-free zone person from qualifying activities only, including:
⚬ Manufacturing of goods or materials
⚬ Processing of goods or materials
⚬ Holding of shares and other securities
⚬ Ownership, management and operation of ships
⚬ Reinsurance
⚬ Fund management
⚬ Wealth and investment management
⚬ Headquarter services
⚬ Treasury and financing services
⚬ Financing and leasing of aircraft, including engines and rotable components
⚬ Distribution of goods or materials in or from a designated zone to a customer that resells such goods or materials, or parts thereof or processes, or alters such goods or materials or parts thereof for the purposes of sale or resale.
⚬ Logistics
IMPORTANT CLAUSES
- Business restructuring to take place in a tax neutral manner
- Interest deductible against profit subject to corporate tax, subject to limit of 30% of EBITDA and other conditions
- Only 50% of entertainment expenditure to be deducted against taxable profits, with employee entertainment 100% deductible
- Payments to connected people (e.g. directors or owners) to be at market value, wholly and exclusively for business purposes
- Tax losses offset against the taxable income of subsequent tax periods subject to conditions
SMALL BUSINESS TAX RELIEF
- A scheme to support small and medium-sized enterprises (SMEs) providing exemption from payment of corporate tax if revenue does not exceed AED 3 million in a Tax Period
- Applicable for 3 Tax periods starting from June 1, 2023 until December 31, 2026
- Normal corporate tax provisions applicable, if revenue exceeds AED 3 million in relevant Tax Period or previous period
- Election to made by Taxpayer for claiming the small business relief
- Corporate Tax registration mandatory, but simplified Corporate Tax return
- Credit of foreign tax paid can be claimed against tax liability
- Double taxation agreements signed by the UAE and several countries to ensure that taxpayers are not taxed twice
- Companies or individuals to obtain a Tax Residency Certificate to benefit from these agreements
MAJOR FINES FOR VIOLATIONS
- Failure of filing a tax return within due date: AED 500 per month or part for delay upto 12 months, AED 1,000 per month thereafter
- Failure to pay tax on time: 14% per annum (calculated monthly) on the unpaid tax for each month/ part that the tax is late
- Failure to keep required tax records: AED 10,000 for each violation, AED 20,000 for each repeat violation within 24 months
- Submission of Voluntary Disclosure: A monthly penalty of 1% on the Tax Difference, for each month or part thereof
- Failure to submit, or late submission of a Declaration to the FTA: AED 500 per month or part for delay upto 12 months, AED 1,000 per month thereafter
This guide has been prepared by OH LLP in partnership with PKF UAE.
For more information on UAE’s corporate tax or OH LLP’s tax services along with our tax partner PKF UAE, book an online or in-person consultation via info@ohllp.com or +97124110619
Sources:
- www.tax.gov.ae
- www.mof.gov.ae
- u.ae