FAQs About Corporate Tax In UAE
Frequently asked questions - FAQs About Corporate Tax In UAE
A tax on the net income of a company is called corporate tax. For a country, it is a source of revenue. It is called by other names such as ‘Business Profits Tax’ or ‘Corporate Income Tax’ in different countries.
The new corporate tax regime that will become effective from the financial year starting from June 1, 2023, or later, imposes a 9% tax rate. The new tax rate is applicable to UAE businesses earning taxable income equal to or above AED375,000. For businesses earning less than this amount, the tax rate is 0%.
More details will come out when the legislation is finalized in the months to come.
There might be other exemptions that the Ministry will announce at the time of final legislation.
No, businesses are not required to pay UAE corporate taxes in advance.
If foreign businesses and individuals conduct a business or trade in the UAE, then the corporate tax rate will be imposed on them.
An individual’s salary is not subject to any corporate tax under the new tax regime. Any other income received because of employment is also not subject o this tax.
If a company’s financial year starts from January 1 and ends on December 31, then the new UAE corporate tax rate will apply to it from the financial year starting from January 1, 2024, to December 31, 2024.
Following incomes are not subject to the corporate tax rate:
• Salaries of individuals
• Other employment income of individuals
• Personal investment in real estate
• Capital gains, dividends, interest income from saving schemes or bank deposits, and income due to shareholding of individuals in a personal capacity
• Qualifying intra-group transactions and reorganizations that satisfy the necessary conditions
• Capital gains and dividends earned from qualifying shareholding by UAE businesses
• Foreign individuals and entities with no trade or business operations in UAE in a regular manner
• Income from capital gains, royalties, dividends, interests, and other investment returns of foreign investors
• Free zone businesses not conducting any business in mainland UAE and complying with all regulatory requirements
Accordingly, a business can use the losses carried forward from the year after the effective date of the new corporate tax rate to offset the taxable income in the financial years after that year. Similar provisions apply in the case of offsetting the taxable income of one group company with the losses from another group company.
The key reasons behind introducing corporate tax rate include:
- To align with the global objective of requiring large multinationals to pay a minimum tax amount at the declared rate
- To address all the problems, challenges, and disputes arising because of the economic digitalization across the world through adopting OECD BEPS 2.0 measures
- To improve the country’s competitiveness in the global market by introducing a competitive corporate tax rate