On 9 December 2022, the United Arab Emirates issued the new Law on the taxation of corporations and businesses, ‘’the CT Law’’. The CT Law will apply for financial years starting on or after 1 June 2023 and has been designed to incorporate best practices globally and to minimise the compliance burden on businesses.
Scope
The new Corporate Tax (CT) will apply to companies and individuals (whether resident or not). Individuals will only be subject to corporation tax on their income derived from a business activity carried out in the UAE.
Resident companies are subject to CT on their worldwide taxable income (subject to certain exemptions—see key highlights for further details), while non-resident companies are taxed if:
- They have a permanent establishment (PE) in the UAE;
- They have income sourced from the UAE; or
- They have a nexus with the UAE.
How can JTC help?
With UAE Corporate Tax now effective (accounting periods starting on or after 1 June 2023), businesses that are yet to assess the impact of UAE corporate tax should immediately do this.
The JTC team is available to discuss these developments and any questions you may have as well as assist with the following
- Registration with Ministry of Finance
- Preparation and submission of the CT tax return and supporting documentation
Key highlights
CT Rates
The CT rates are 0% up to a prescribed threshold (375,000 UAE dirham ($102,000)) and 9% on taxable profits above this.
Free Zones
The UAE intends to honour its commitment to businesses registered in Free Trade Zones, and to the extent that such businesses do not conduct business with mainland, shall be subject to 0% (or be exempt as the case may be) until the end of the holiday period. All free zones have to file an annual CT return.
Various conditions need to be met to qualify for the beneficial free zone tax treatment, including maintaining adequate substance, applying the arm’s-length basis to related party transactions and complying with transfer pricing documentation requirements. Recently the Ministry of Finance released Cabinet and Ministerial Decisions regarding determining Qualifying income, Qualifying Activities, Excluded Activities and de minimis requirements for the purposes of the CT Law.
Our observation is that the rules are complex and do not cover all activities such that many entities will be disqualified.
Businesses with presence in both Mainland UAE and Free Trade Zones, as well as those operating under the dual license scheme, should consider the impact on their operating model if they intend to benefit from this regime.
Exemptions
The CT Law includes both entity level tax exemptions as well as exemptions for certain types of income. This includes dividends, profits from Intra-group transactions and capital gains on certain ownership interests as well as qualifying foreign exchange gains and impairment gains.
Transfer Pricing
The CT Law introduces transfer pricing requirements for transactions between related parties and requires the application of the arm’s-length basis and requires both master file and local file documentation to be retained by taxpayers.
Additional guidance in the form of Ministerial Decisions continues to be released, and the JTC team is closely monitoring these updates.
Administration
The CT law will apply to tax periods commencing on or after 1 June 2023, of which a tax period shall generally follow the accounting period and be 12 months long.
All Taxable Persons (including Free Zone Persons, dormant entities, businesses registered for VAT if within scope or entities eligible for the small business relief) will be required to register for Corporate Tax and obtain a Corporate Tax Registration Number.
The registration is currently open for the following types of entities: Public Joint Stock Companies, Private Shareholding Companies and Limited Liability Companies resident in UAE. All other entities are required to wait until they receive the invitation from the Federal Tax Authority.
No penalties are envisaged for late registration. However, it should be noted that due to non- registration, other infractions such as late return filing may arise and they will attract penalties.
The tax return and payments are due no later than nine months from the end of the relevant tax period. The Ministry of Finance has advised that the registration process will begin shortly on invitation over the next six months.
- Registration – With the FTA to obtain a Tax registration number before the filing deadline
- Tax Return – File within 9 months from the end of relevant tax period e.g for year ended 31 Dec 2024 file by 30 September 2025
- CT liability – CT liability payment within 9 months of the end of a tax period
