The go-live date for UAE Corporate Tax (CT) is 1 June 2023, bringing a direct tax to the UAE for the first time, and the second major tax after the introduction of VAT in 2018.
With a headline rate of 9%, the rate of CT is the one of the lowest rates globally, and the lowest of all GCC countries to have introduced a similar regime (Bahrain being the sole exception). However, with various reliefs for natural people (more on that later), small businesses and the interaction with Free Zone persons, many taxable people will pay a lower rate.
The UAE Ministry of Finance (MoF) first announced their intention to introduce a new federal CT system on 31 January 2022, with a subsequent consultation document released on 28 April 2023. The Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses (known as the “Corporate Tax Law”), was then published on 9 December 2022, with various Ministerial Decisions clarifying aspects of the law being released since that date.
The UAE CT regime, which will be effective for financial years starting on or after 1 June 2023, is designed to incorporate global best practices and help the UAE to achieve its ambitions whilst remaining competitive and incentivising businesses to establish and expand their activities in the UAE
By introducing corporation tax in the UAE, the Government is also showing its commitment to Pillar Two of the BEPS project to introduce a global level of corporation tax (or equivalent tax). As such, it is anticipated that large multinational corporations with turnover in excess of AED 3,150 m (EUR 750m) will have a higher tax rate of 15%. However, this is currently not incorporated into the law, but has been disclosed in the consultation document, FAQs and some Ministerial Decisions.
Who is Within the Scope?
The UAE CT regime is relatively unique in that both natural and juridical persons are potentially within the scope, albeit with several exemptions for natural people. There are other exemptions for Government entities, charities and pension funds, amongst others.
For natural people, the main points were covered in a recent Ministerial Decision, being Cabinet Decision No. (49) of 2023. This Decision confirms that natural people will not be taxed on:
- Personal Investments.
- Real Estate Investments.
- Income from business activities where the turnover does not exceed AED 1m in a calendar year.
Both the personal investment and real estate income is under the premise that a business licence is not required to conduct either activity.
Save for some exceptions, all legal persons that are resident in the UAE, by virtue of incorporation or by other means (i.e. permanent establishments, managed and controlled from the UAE) are within the scope of UAE CT. This includes all Free Zone persons. However, Qualifying Free Zone persons may still benefit from a 0% tax rate.
UAE CT and Free Zones
Free Zones in the UAE play a significant role in the country's economy by promoting international trade and attracting foreign investment. As Free Zones have contributed significantly to the UAE's economic growth and development, the UAE CT regime will honour the tax incentives currently being offered to Free Zone persons so long as they comply with all regulatory requirements.
These requirements include deriving qualifying income, having a financial audit, maintaining adequate substance, and complying with other aspects of the legislation, such as transfer pricing rules.
How Can We Help?
At Sanctuary, we have an experience team of tax qualified individuals who can assist our clients with ensuring they are well prepared for the new regime. This could include specific tax planning, structuring and other relevant assistance, as well as helping with any compliance or administrative requirements so that tax filings and payments are made both correctly and on time.
For more information on how we can help, or to get a quote for any of our services, please get in touch using the contact details below.