“ The certainty of a competitive and best in class Corporate Tax regime, together with the UAE’s extensive double tax treaty network, will cement the UAE’s position as a world-leading hub for business and investment. The introduction of a Corporate Tax regime will help the UAE achieve its strategic ambitions and incentivize businesses to establish and expand their activities in the UAE ”, says His Excellency Younis Haji Al Khoori, Undersecretary of the Ministry of Finance (MoF)
Corporate Tax in UAE
The United Arab Emirates is all set to introduce the first Direct Tax in its history, Corporate Income Tax, honoring International Taxation Practices and diversifying income sources. It is time for business entities to prepare themselves for the change.
Are you taxable ?
Do you own a trade license to carry out a commercial activity in the mainland of UAE? Then, yes, you are taxable! Except for the income from the extraction of natural resources, every other business conducting trade on the Mainland comes within the purview of CIT. Any other exceptions can only be known after the enactment of the Law.
Tax Rate & Calculation
The proposed CIT introduces a 3-tier system and the rates are as follows:
Annual taxable profits below or equal to AED 375,000 shall be subjected to a zero rate.
Annual taxable profit above AED 375,000 shall be subjected to a 9 per cent rate.
Multinational Entities within the scope of OECD Base Erosion and Profit Shifting rules will face a differential treatment which is yet to be announced.
Unlike VAT Law which is over turnover, the threshold of the CIT is determined over Business Profit.
The Corporate Tax will be effective for the financial years starting from on or after 1 June 2023. Any Business adopting the financial year from 1st of July 2023 to 30th of June 2024, will be subject to corporate tax from the 1st of June 2023. Any Business adopting the financial year from 1st of January 2023 to 31st of December 2023, will be subject to corporate tax from the 1st of January 2024. The filing shall be done annually unlike the VAT law which adopts quarterly filing.
The Net Profit of a business, after adjusting certain items as per the Accounting Standards, shall be taxable. The Profit exceeding AED 375,000 shall be liable to be considered for the Tax. The following are exempted from CIT.
Salary or any other income related to the employment of an individual. Interests and other income from bank deposits and saving schemes. Profits from Intra-group transactions and group reorganization. Dividends, Capital gains, or any other investment income earned by holding equity investments and income received from real estate which does not require a trade license to carry out their activity. A natural person conducting commercial activity does come within the ambit of corporate income tax.
Plan your Tax
Every Tax legislation provides ample room for rebates, deductions and exemptions. So far, Any foreign taxes incurred on an income shall be deducted for the purpose of corporate tax. Accumulated losses of a year shall be allowed to offset future taxable profits. Tax Grouping and reorganization can be attempted and intra group transactions or losses incurred by an entity shall be dispensed with. Get in touch with Nex Consultants to keep updated to well plan your finances and save tax legally.
Free Zones in UAE
A few takeaways for a free zone company.
Any income received from transactions with Businesses located outside UAE shall be taxed at zero rates. Transaction within the same Free zone or trading with a different Free zone will be taxable at zero rates. If a Free Zone company sells goods to an ‘importer on record’ in the Mainland of UAE, they will be taxed at a zero rate. Transaction or contract with onshore customers or income revenue derived from the Mainland is likely to be treated as Business with the mainland and might attract CT. For a Branch established on the mainland, any profit sourced from it shall be taxable at a nine percent rate, But any other passive income like interest, royalties, etc.. shall not be taxed.
Get ready for the change.
The United Arab Emirates has entered the regime of Taxation through VAT. More than a source of income, it was a ‘policy parameter’ and ‘numerical assessment’ of growth for the Government. By modernizing the economy, aligning to international standards & bringing in financial discipline, the Jurisdiction would attract more business in the future. The move is industrious, highly thoughtful, and has far-reaching business implications. With minimal and simple compliance requirements, it might not result in chaos or confusion.
Through a thorough analysis and well-designed plan, the businesses can make the transition smooth. An impact assessment of the proposed law, the existing corporate structure of the company, accounting, and contracting, everything has to be remodeled in line with the new legislation. With Nex Consultants, we assure the transition will be trouble-free, and you can concentrate on your core without worrying about the change in the law.
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