Tuesday, 30 May 2023

UAE to introduce Corporate Tax on Business Profits from June 1, 2023

The United Arab Emirates (UAE) Government is going to introduce a federal corporate tax rate on profits of businesses. UAE is initiating this step first time from June 1, 2023. Finance Ministry of UAE announced this on Monday. Important factor in this corporate tax rate will be it’s low rate for the purpose to maintain its attractiveness for corporate businesses.

In it’s news statement by UAE’s ministry through state news agency WAM, said “the tax will be levied on all corporations and commercial activities in the country, except for the “extraction of natural resources” which will remain subject to taxation at the emirate level.

This Step has been taken by the United Arab Emirates to generate their other sources of revenues also apart from oil revenue.

Rate of Tax

According to Finance ministry of UAE, the new tax regime will bring a fixed statutory corporate tax rate of 9%, and 0% rate for taxable profits up to 375,000 dirhams ($102,107.50) in order to favor small businesses and startups.

Here it is important to mention that the UAE corporate tax will continue to available the corporate tax incentives currently available to free zone businesses. If they comply with all regulatory requirements and that do not do business with mainland UAE, according to ministry.

“Given the position of the UAE as a global financial centre and an international business hub, the UAE Corporate Tax regime will support investment and headquarters activities and ensure the free flow of capital, trade, financing, and services,” statement added by the ministry posted on its website.

“With a standard statutory tax rate of 9% and a 0% tax rate for taxable profits up to AED 375,000 to support small businesses and startups, the UAE Corporate Tax regime will be amongst the most competitive in the world.”

The ministry said businesses would have plenty of time to prepare for the introduction of corporate tax, and more information on the UAE corporate tax system would be provided by mid-2022 to help businesses prepare and fully comply.

It is also to be reminded that in year 2018, the UAE government has already introduced value added tax (VAT) on goods and services at a fixed tax rate of 5%.

Extension In Date of Filing Income Tax Returns

When will this corporate tax will start affecting businesses in the UAE?

According to Gulf News, a business that has a financial year starting on 1 January 2023 and ending on December 31, 2023 will become subject to UAE corporate tax from January 1, 2024 – which is the beginning of the first financial year that starts on or after 1 June 2023).

How does this tax effect Non-resident, entrepreneurs?

Non-residents that conduct business in the UAE through a permanent establishment are liable to pay corporate tax from June next year. This is not a tax on individuals and their incomes.

This means that corporate tax will not apply on an individual’s salary and other employment income (received both from the public or private sector).

Corporate tax will also be paid by entrepreneurs or business owners in a range of industries.

Income from a freelance license / permit will be charged corporate tax above the minimum threshold of Dh375,000 in annual profit. Investment in real estate by individuals in their personal capacity should not be charged to tax if the individual is not required to obtain a commercial license / permit to carry out such business activity.

Corporate tax rate imposed in UAE
UAE Corporate Tax Introduced

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