by Gregor Pannike

Corporate Tax Law in the United Arab Emirates

On 9 December 2022 the United Arab Emirates (“UAE”) has issued Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses (“Corporate Tax Law”). The Corporate Tax Law will be effective for financial years starting on or after 1 June 2023.

Article 2 of the Corporate Tax Law provides that Corporate Tax will be imposed on Taxable Income. Below we have outlined some of the key provisions in an overview.

What is taxable income?

  • Taxable Income shall be determined based on the net profit (or loss) as prepared in the financial statements.
  • Article 22 of the Corporate Tax Law provides exemptions for the following income:
    • Dividend income earned by UAE company from its qualifying shareholdings (to be defined in the law)
    • Capital gains
    • Profits from group reorganization
    • Profits from Intra-group transactions

What is corporate tax and which rates apply?

  • A corporate income tax is levied by federal and state governments on business profits. According to Article 3 of the Corporate Tax Law, the following rates apply:
  • 0% (zero percent) on the portion of the taxable income not exceeding the amount specified in a decision issued by the Cabinet at the suggestion of the Minister.
  • 9% (nine percent) on taxable income that exceeds the amount specified in a decision issued by the Cabinet at the suggestion of the Minister.

Who is subject to corporate tax?

  • Companies duly incorporated within the UAE and other juridical persons that are incorporated or effectively managed and controlled in the UAE;
  • Natural persons (individuals) who conduct a business or business Activity in the UAE as specified in a Cabinet Decision to be issued in due course; and
  • Non-resident juridical persons (foreign legal entities) that have a permanent establishment in the UAE (as defined in the Corporate Tax Law)

Which exemptions are in place?

  • Article 4 of the Corporate Tax Law exempts certain persons / entities from paying corporate tax as follows:

Automatically exempt:

  • Government entities
  • Government controlled entities

Exempt if notified to the Ministry of Finance and subject to meeting certain conditions

  • Person engaged in an Extractive Business
  • A Person engaged in a Non-Extractive Natural Resource Business

Exempt if listed in a Cabinet Decision

  • A Qualifying Public Benefit Entity

Exempt if applied to and approved by the Federal Tax Authority (and subject to meeting  certain conditions)

  • A Qualifying Investment Fund.
  • A public pension or social security fund, or a private pension or social security fund that is subject to regulatory oversight of the competent authority in the State.

What about free zones?

A Free Zone Person that is a Qualifying Free Zone Person can benefit from a preferential Corporate Tax rate of 0% on their “Qualifying Income”.

In order to be considered a Qualifying Free Zone Person, the Free Zone Person must:

  • maintain adequate substance in the UAE;
  • derive ‘Qualifying Income’;
  • not have made an election to be subject to Corporate Tax at the standard rates; and
  • comply with the transfer pricing requirements under the Corporate Tax Law.

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