UAE New Corporate Tax Regime

In a notable shift from its traditional tax-free environment, the United Arab Emirates (UAE) has introduced a federal decree-law to implement a 9 percent corporate tax on taxable business profits exceeding AED375,000. The Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses, also known as the “Corporate Tax Law,” was announced in December 2022 and is set to take effect from June 1, 2023.

Understanding the Corporate Tax Law of UAE

The newly announced corporate tax law in the UAE establishes a two-tiered taxation system:

1. Zero percent tax on the portion of taxable income below AED375,000.
2. Nine percent tax on taxable income that exceeds AED375,000.

The law applies to UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE. Also included are natural persons conducting a business or business activity in the UAE, non-resident juridical persons that have a Permanent Establishment in the UAE, and juridical persons established in a UAE Free Zone.

However, some entities are exempt from this corporate tax, such as government entities, government-controlled entities, and certain persons engaged in extractive or non-extractive natural resource businesses, among others.

Tax Deadlines and Compliance

The newly established tax regime offers taxpayers a generous time frame of up to 21 months from the start of their financial year to prepare for filing and making their tax payments. For instance, businesses with a financial year starting on June 1, 2023, and ending on May 31, 2024, will have the period from June 1, 2024, to February 28, 2025, to file their corporate tax returns and make their payments.

Implications for Businesses

The introduction of the corporate tax law signifies a significant change in the UAE’s business landscape. While some businesses may be concerned about the increased financial burden, it’s important to view this new law within the broader context of UAE’s commitment to align with global economic and regulatory trends.

On a positive note, the law provides clarity and stability for businesses operating in the UAE. Furthermore, the low tax rate, coupled with the continued absence of personal income tax, allows the UAE to maintain its competitiveness as a leading business hub.

Moreover, the corporate tax law could enhance the UAE’s reputation among foreign investors by demonstrating its commitment to adopting internationally recognized economic policies and standards.

Conclusion

The new corporate tax law is a landmark development in the UAE’s economic policy. Businesses operating in the UAE should familiarize themselves with the new tax requirements, plan accordingly to meet their tax obligations, and seek professional advice to navigate this new corporate tax landscape effectively.