New corporate tax regime in UAE

On 31 January 2022, the Ministry of Finance of the United Arab Emirates (UAE), announced the implementation of a path-breaking corporate tax regime in the UAE, effective from the financial year commencing on or after the 1^st   of June 2023. The UAE, member of OECD (Organization for Economic Cooperation and Development) is introducing the federal corporate tax system as an effort to align with the international norms on minimum effective tax rate initiated by Pillar II of the OECD Base Erosion and Profit Shifting Project.

By lodging the new federal corporate tax regime, the UAE government aims to establish a robust, competitive tax regime while integrating and collaborating with the existing international standards and modern business practices and as result, to solidify its position as a leading jurisdiction for expanding business and investing.

The UAE has adopted the lowest corporate income tax rate of 9% within the Gulf Corporation Council,applicable to all businesses and companies conducting commercial activities within the seven emirates. 

1. Applicability of the UAE federal corporate tax
2. Legal entities such LLCs, PSCs, PJSCs, LLPs incorporated in the UAE and any other legal entities conduction commercial activities in the UAE.
3. Foreign legal entities with permanent establishment in the UAE, have an UAE income or have nexus in the UAE as specified by ministerial decision.
4. Natural persons conducting business in the UAE specified by Cabinet decision.

Legal entities incorporated, established and/or recognized outside the UAE but they are effectively managed and controlled in the UAE.

• Effective date of the federal corporate tax regime
• Applicable by the 1^st of June 2023 for financial years commencing on the 1^{st of} June 2023 and ending 31 May 2024. Submission of the 1^st tax return should be made by the end of 2024.
• For companies having their calendar year beginning on the 1^{st of} January 2023 and ending on the 31^st of December 2023, the new corporate tax regime will be applicable by the 1^st January 2024 and submission should be made towards mid-2025.

• Exemptions to the Corporate Tax Regime
• Businesses engaged in the extraction of natural resources are exempted from the corporate tax regime, but they will continue to be subject of tax decrees determined by the respective Emirate.
• Individuals’ earnings income from their activities provided their activities do not require commercial licenses and employment income.
• Foreign investors income generated by dividends, capital gains, royalties of other investments.
• Investments in real estate by individuals in their personal capacity.
• Interests from bank deposits or savings.
• Profits from group reorganization and intra-group transactions, provided that the requested conditions are met.
• Dividends earned by UAE companies from owing shares or other securities.
• Governmental entities and entities controlled by the government
• Public or private pensions and social security funds
• Qualifying public benefit entities and investments funds as stipulated by the relevant law.

• Applicable rates
• All annual business profits up and falling under the threshold of 375.000 AED are subject to 0 % rate.
• All annual business profits above the amount of 375.000 AED are subject to 9% rate.
• Large multinational firms generating profits more than 750 million EUROS shall be subject to pay a 15 % tax in line with the Pillar 2 of the OECD Base Erosion and profit Shifting CBEPS) project.

Regarding businesses registered in the Free Trade Zones, corporate tax incentives will continue to apply, and such businesses shall be subject to 0% tax provided that do not conduct any operations within the UAE mainland and comply with all regulatory requirements including the obligation to register and submit a corporate tax return. Conducting operations both in UAE Mainland and Free Trade Zones, shall be subject to define based on the operating model.

Transfer Pricing Rules are applicable for transactions between related and connected persons in conformity with the standards of the OECD Transfer Pricing Rules.

Eurofast’s experts are well-appointed to provide you with any further explanations regarding the corporate tax regime in the UAE and guide you through all the process of elaborating reports, registering, administering or submitting relevant applications.

For further information or assistance, please contact our Legal department at our Eurofast office in Nicosia, Cyprus at nicosia@eurofast.eu