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.
