UAE - Corporate Tax – Key Insights
The UAE Ministry of Finance announced on January 31 the implementation of a federal corporate tax regime with a standard rate of 9%, which will apply to eligible enterprises starting in June 1st, 2023.
The tax-free current system, which includes no personal income tax, has mostly been preserved. The Finance Ministry, on the other hand, stated that it was introducing a corporate tax to coordinate worldwide efforts to combat tax evasion and to meet challenges posed by the global economy’s digitalization.
Except for the “extraction of natural resources,” which will continue to be taxed at the emirate level, the new tax will be imposed on all enterprises and commercial operations in the country.
The United Arab Emirates has long marketed itself as a destination where international investors are encouraged, and income is tax-free. Low taxes and a business-friendly climate have helped to change the 50-year-old country over time.
Scope of UAE corporate tax regime
UAE Businesses are subject to pay corporate tax. Except for companies engaged in the extraction of natural resources such as oil and gas, all UAE enterprises will be subject to corporation tax.
According to the initial MoF guidelines, the UAE corporate tax regime would be residence-based, with the international income of UAE resident enterprises subject to taxation. Nonresidents would be taxed on business revenue earned in the UAE.
Under certain scenarios, which have yet to be stated in the law, the corporate tax base would exclude dividends and capital gains made by UAE enterprises.
Finally, under the UAE corporate tax structure, UAE withholding tax will not apply to any domestic or cross-border payments of any kind, including dividends, interest, and royalties.
When will the UAE's new corporate tax structure go into effect?
For financial years beginning on or after June 1, 2023, the new corporate tax structure will take effect.
Non-compliance will result in penalties, just like other taxes in the UAE. The penalty regime will be made public in the future.
Despite the fact that there is plenty of time to prepare, the evaluation, implementation, and post-implementation of corporate tax processes and procedures is a time-consuming and challenging task, depending on the size and operations of the organization. It’s best to start planning as soon as you can.