UAE Corporate Income Tax
The United Arab Emirates (UAE) is introducing a new corporate income tax (CIT) regime on June 1, 2023. This is a significant development for businesses operating in the UAE, as the country has previously had no federal CIT. The new regime will apply to all businesses and commercial activities, except for certain exempt entities.
The new CIT regime will have a standard tax rate of 9%. However, businesses with taxable income below AED 375,000 will be subject to a 0% tax rate. This exemption is intended to support small businesses and startups.
Key Features of the New CIT Regime
Exemptions: In addition to the exemption for small businesses, there are a number of other exemptions from CIT, including for:
- UAE government entities and government-controlled entities
- Persons engaged in extractive businesses in the UAE
- Persons engaged in non-extractive natural resource businesses in the UAE
- Qualifying public benefit entities
- Qualifying investment funds
Double tax treaties: The UAE has a number of double tax treaties (DTTs) in place with other countries. These DTTs will help to reduce the risk of double taxation for businesses that operate in multiple jurisdictions.
Compliance requirements: Businesses will be required to file annual tax returns and pay taxes to the Federal Tax Authority (FTA). The FTA will also provide guidance and support to businesses on how to comply with the new tax regime.
The introduction of the new CIT regime is a significant change for businesses operating in the UAE. Businesses should carefully review the new regime and take steps to ensure that they are compliant.
UAE Corporate Tax Implications for Foreign Businesses
The introduction of the UAE’s new corporate income tax regime will have a number of implications for foreign businesses operating in the UAE.
- Tax liability
Foreign businesses will need to assess the impact of the new regime on their tax liability. This will involve determining whether they are liable to pay CIT in the UAE, and if so, at what rate. Foreign businesses will also need to consider the impact of any double tax treaties that the UAE has in place with their country of domicile.
- Compliance requirements
Foreign businesses will also need to comply with the new CIT regime. This will involve filing annual tax returns and paying taxes to the Federal Tax Authority (FTA). Foreign businesses should also ensure that they have the necessary resources in place to comply with the new tax regime, such as qualified tax advisors and accountants.
- Structuring and operations
Foreign businesses may also need to consider restructuring their operations or legal entities in order to minimize their tax liability under the new CIT regime. For example, foreign businesses may want to consider establishing a presence in a UAE free zone, which offer certain tax benefits.
- Tax planning
There are a number of tax planning opportunities available to foreign businesses under the new CIT regime. For example, foreign businesses may be able to reduce their tax liability by claiming certain tax credits and deductions. Foreign businesses should consult with a qualified tax advisor to discuss their specific tax planning options.
How the new CIT regime may impact foreign businesses?
- A foreign business that has a permanent establishment in the UAE will be liable to pay CIT on its income from that permanent establishment.
- A foreign business that does not have a permanent establishment in the UAE but that earns income from UAE-sourced activities may still be liable to pay CIT on that income.
- A foreign business that has a double tax treaty with the UAE may be able to reduce its tax liability in the UAE by claiming a tax credit for taxes paid in its country of domicile.
- A foreign business that is considering establishing a presence in the UAE should compare the tax benefits of different types of business entities, such as mainland companies, free zone companies, and branches.
- A foreign business that is already operating in the UAE should review its tax planning strategies to ensure that it is taking advantage of all available tax credits and deductions.
Foreign businesses should consult with a qualified tax advisor to discuss their specific tax situation and how to comply with the new CIT regime.
Contact M.A. Middle East Legal Consultancy today for a free consultation on how to prepare your business for the UAE’s new corporate income tax regime.
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