What is Corporate Tax in the UAE?
The UAE introduced Corporate Tax (CT) as a federal tax framework under Federal Decree-Law No. 47 of 2022, effective for financial years starting on or after June 1, 2023. This tax is applicable across all Emirates and aims to enhance the UAE’s economic sustainability while meeting international tax standards.
Key Features of the Corporate Tax Framework
The Corporate Tax framework includes the following key elements:
- Tax Rates: A 0% tax rate applies to taxable income up to AED 375,000, and a 9% tax rate applies to income above this threshold. Large multinationals may face a minimum effective tax rate of 15% under the OECD’s Pillar Two rules.
- Scope: Applies to businesses and individuals engaged in commercial activities under a trade license, including free zone businesses that meet specific conditions.
- Exemptions: Certain entities, such as government entities, natural resource extractors, and qualifying public benefit entities, are exempt from CT.
- Small Business Relief: Businesses with annual revenue under AED 3 million can elect for relief until December 31, 2026, exempting them from taxable income during this period.
Corporate Tax and Free Zones
Free zone businesses may qualify for a 0% tax rate on eligible income, provided they meet conditions such as deriving qualifying income, maintaining adequate substance in the UAE, complying with transfer pricing rules, and preparing audited financial statements. The criteria for determining ‘qualifying income’ depend on the nature of the business activities.
Withholding Tax
Withholding tax applies to specific types of UAE-sourced income earned by non-residents without a permanent establishment in the UAE. Currently, the withholding tax rate is set at 0%, but changes may occur in the future. Businesses can leverage the UAE’s network of double tax treaties to mitigate potential withholding tax obligations.
Filing and Compliance
The Federal Tax Authority (FTA) administers the Corporate Tax system, requiring businesses to register, file returns, and maintain accurate financial records. Key compliance requirements include:
- Timely registration and filing of returns through the FTA’s online portal.
- Compliance with transfer pricing rules and maintaining proper documentation.
- Preparation of audited financial statements for applicable entities.
Next Steps for Businesses
To ensure compliance with the UAE’s Corporate Tax framework, businesses should:
- Evaluate their eligibility for CT and any applicable exemptions or relief.
- Understand their obligations under the Corporate Tax Law, including rates and filing requirements.
- Consult tax professionals to navigate complex requirements and optimize tax positions.
For further guidance and updates, visit the Federal Tax Authority website.
