UAE: New corporate income tax system, scheduled to be effective 1 June 2023

A new corporate income tax system is scheduled to be effective 1 June 2023

A new corporate income tax system is scheduled to be effective 1 June 2023

The Ministry of Finance on 31 January 2022 announced that a new corporate income tax system would be implemented in the UAE, and would apply for financial years starting on or after 1 June 2023.

The UAE’s new corporate income tax would impose the lowest rate within the region (barring Bahrain) at a standard rate of 9%.

  • Any company that adopts a fiscal year starting on 1 June 2023 and ending 31 May 2024, would be subject to corporate income tax starting 1 June 2023. The first tax return filing would be likely due towards the end of 2024.
  • Any company that adopts a calendar year starting 1 January 2023 and ending 31 December 2023, would be subject to corporate income tax starting 1 January 2024 and filing would be likely due towards mid-2025.

Scope of the corporate income tax

The UAE’s federal tax system that is applicable to all businesses and commercial activities operating within the seven emirates (including the foreign banking sector). However, there are certain exceptions:

  • Businesses operating in the extraction of natural resources. These will continue to be subject to the tax decrees issued by the respective emirate
  • Individuals earning income in their personal capacity (i.e., salary, investment income) as long as the income generating activity does not require a commercial license
  • Businesses registered in free trade zones, provided they comply with all the regulatory requirements, and that do not conduct business with mainland UAE

Rates

The announced UAE corporate income tax regime would introduce a tier system with three rates:

  • All annual taxable profits that fall under AED 375,000 would be subject to the zero rate.
  • All annual taxable profits above AED 375,000 would be subject to 9% rate.
  • All multinational enterprises (MNEs) that fall under the scope of Pillar Two of the OECD’s base erosion and profit shifting (BEPS) 2.0 framework (i.e., consolidated global revenues in excess of AED 3.15 billion) would be subject to different rates as per the OECD’s BEPS rules.

Taxable profits are the accounting profits subject to certain adjustments, as well as certain exemptions (e.g., dividends from qualifying shareholdings, capital gains, and profits from group reorganizations or intra-group transactions).

Read a February 2022 report prepared by the KPMG member firm in the United Arab Emirates

 

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