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Know About Corporate Tax In UAE
Corporate Tax in UAE is a form of direct tax levied on the net income of businesses. Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax”.
The UAE Ministry of Finance has introduced Corporate Tax, a direct tax imposed on the net income of corporations and other businesses, on 9th December 2022 and this is going to be effective for financial years on or after 1st June, 2023. The Corporate Tax is also referred to as “Business Profits Tax” or “Corporate Income Tax” in other jurisdictions.
Corporate Tax in UAE will remain the lowest tax rate in the world, and it reduces the compliance burden on businesses. The introduction of Corporate Tax will increase the revenue of the UAE which is essential to stand competitive in the global business and investment environment. This would bring more financial discipline in the corporate culture which would in turn result in the proper maintenance of record keeping. The UAE is committed to upholding worldwide standards of tax transparency while safeguarding local start-ups and small enterprises, which is why the introduction of a corporate tax is being proposed.
Pioneer Hedge is committed to provide best and professional corporate tax services for our valued clients in Abu Dhabi, UAE
Effective date
The Corporate Tax in UAE will be implementing on or after June 1, 2023.
Timeline
watch the event on latest corporate tax in UAE
who is subject to corporate tax ?
Broadly Corporate Tax applies to the following “Taxable Persons”
● UAE companies and other juridical persons
● Natural persons (individuals) who conduct a Business
● Non-resident juridical persons (foreign legal entities) that have a permanent establishment in the UAE.
UAE FREE ZONE is also within the scope of Corporate Tax as ” Taxable Persons”.
Qualifying Free Zone person can benefit from a Corporate Tax rate of 0% on their qualifying income. Other Income 9%.
Qualifying income as specified in a decision issued by the Cabinet at the suggestion of the Minister.
who is exempt from corporate tax ?
- Automatically Exempt
- Govt Entities
- Govt Controlled entities that are specified in a Cabinet Decision
2. Exempt is notified to the Ministry Of Finance (and subject to meeting certain conditions)
- Extractive businesses.
- Non Extractive natural resources businesses.
3. Exempt Is Listed In A Cabinet Decision
- Qualifying Public Benefit Entities
4. Exempt is applied to and approved by the Federal Tax Authority ( and subject to meeting certain conditions)
- Public or private pension & social security funds
- Qualifying Investment funds
- Wholly-owned and controlled UAE subsidiaries of a Govt. Entity, a Govt Controlled Entity, a Qualifying Investment Fund, or a public or private pension or social security fund.
Taxable person
Resident Person
- A juridical person that is incorporated or otherwise including a Free Zone Person
- A juridical person that is incorporated under a foreign jurisdiction that is managed and controlled in UAE
- A natural person who conducts a Business or Business Activity in the State.
- Any other Person as may be determined by the Minister.
Non-Resident Person
- Have a Permanent Establishment In UAE
- Derive State Sourced Income.
Corporate Tax Rates In UAE
The following are the corporate tax rates
Calculating Taxable Income
1. Corporate Tax is imposed annually.
2. Calculation and payment of Corporate Tax is done through the filing of a Corporate Tax Return with the Federal Tax Authority.
3. Taxable Income is the Taxable Person’s accounting income (i.e. net profit or loss before tax) as per their financial statements on an accrual basis.
4. The Taxable Income shall be the Accounting Income for that period adjusted for the following:
a. Any unrealized gain or loss
b. Exempt Income
c. Reliefs
d. Deductions
e. Transactions with Related Parties.
f. Tax Loss
g. Any income or expenditure determined by Ministery
Exempt Income
Dividends and capital gains earned from domestic and foreign shareholding. Income of a Foreign Permanent Establishment. Income derived by a Non-Resident person from operating aircraft or ships in international transportation.
Deductions
| Types Of Expenditure | Limitation To Deductibility |
|---|---|
|
Bribes |
No Deduction |
|
Fines and Penalities (other than amounts awarded as compensation for damages or breach of contract) |
No Deduction |
|
Donations, grants or gifts made to an entity that is not a Qualifying Public Benefit Entity |
No Deduction |
|
Dividends and other profits distribution |
No Deduction |
|
Corporate Tax imposed under the Corporate Tax Law |
No Deduction |
|
Expenditure not incurred wholly and exclusively for the purpose of the Taxable Person's business |
No Deduction |
|
Expenditure incurred in deriving income that is exempt from Corporate Tax |
No Deduction |
|
Client entertainment expenditure |
Partial Deduction of 50% of the amount of the expenditure |
|
Interest Expenditure |
Deduction of net interest expenditure exceeding a certain de minimis threshold up to 30% of the amount of earnings before the deduction of interest, tax, depreciation and amotisation ( except for certain activities ) |
Interest expenditure limitation does not apply to
a. A Bank
b. An Insurance Provider
c. Natural Person
d. Any other person as may be determined by the Minister. Any expenditure incurred for the purposes of receiving and entertaining the Taxable Person’s customers, shareholders, suppliers ,or other business partners, including, but not limited to, expenditure in connection with any of the following:
a. Meals.
b. Accommodation.
c. Transportation.
d. Admission fees.
e. Facilities and equipment used in connection with such entertainment, amusement, or recreation.
f. Such other expenditure as specified by the Minister will be allowed 50% only.
Dividends, profit distributions, or benefits of a similar nature paid to an owner.
Amounts are withdrawn from the Business by a natural person who is a Taxable Person or a partner in an Unincorporated Partnership
Tax Loss Relief
The amount of Tax Loss used to reduce the Taxable Income for any subsequent Tax Period cannot exceed 75% of the Taxable Income for that Tax Period.
A Taxable Person cannot claim Tax Loss relief for:
a. Losses incurred before the date of commencement of Corporate Tax.
b. Losses incurred before a Person becomes a Taxable Person
c. Losses incurred from an asset or activity the income of which is exempt
Tax Losses can only be carried forward provided that:
a. the same Person or Persons continuously owned at least a 50% ownership interest in the Taxable Person.
b. The Taxable Person continued to conduct the same or a similar Business or Business Activity following a change in ownership of more than 50% with the same assets and liabilities before ownership changes.
Tax Groups
To form a Tax Group, both the parent company and its subsidiaries must be resident juridical persons, have the same Financial Year and prepare their financial statements using the same accounting standards.
Additionally, to form a Tax Group, the parent company must:
Own at least 95% of the share capital of the subsidiary; Hold at least 95% of the voting rights in the subsidiary; and Is entitled to at least 95% of the subsidiary’s profits and net assets.
Registering , Filing And Paying Corporate Tax
Taxable Persons are required to file a Corporate Tax return for each Tax Period within 9 months from the end of the relevant period.
The same deadline would generally apply for the payment of any Corporate Tax due in respect of the Tax Period for which a return is filed.
Importance Of Financial Statements - Article 54
1. The Authority may, by notice or through a decision issued by the Authority, request a Taxable Person to submit the financial statements used to determine the Taxable Income.
2. Taxable Persons shall prepare and maintain audited or certified financial statements.
3. For the purposes of Clause 1 of this Article, the Authority may request a partner to provide financial statements showing The total assets, liabilities,
income and expenditure and The partner’s distributive share.(profit and loss statement and Balance sheet)
4. Notwithstanding the provisions of the Tax Procedures Law, a Taxable Person shall maintain all records, documents and accounting data for a
period of (7) seven years following the end of the Tax Period to which they relate.
Best Corporate Tax Service In Abu Dhabi, UAE