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UAE TO INTRODUCE FEDERAL CORPORATE TAX

Chapter Thirty-Seven: UAE to introduce Federal Corporate Tax (FCT) from June 2023

 

The Ministry of Finance announced that effective June 1, 2023, the UAE would introduce a FCT on business profits.

Businesses will become subject to the 9% UAE corporate tax from the beginning of their first financial year that starts on or after that date. To support small and medium size enterprises there will be a zero-tax rate for taxable profits up to Dh375,000 ($102,000).

Currently there is no corporate tax in the UAE at the federal level, although few emirates impose a limited corporate tax on enterprises engaged in exploration and production of oil and gas and on branches of foreign banks operating in the UAE.

UAE corporate tax regime will incorporate best practices globally and minimize the compliance burden on businesses. Corporate tax will be payable on the profits of UAE businesses as reported in their financial statements prepared in accordance with internationally acceptable accounting standards with minimal exceptions and adjustments

The legislation has yet to be issued and the details for the corporate tax regime are subject to finalization.

 

Why Now?

  • UAE is aiming at cementing its position as a world-leading hub for business and investment
  • Meeting international standards for tax transparency and preventing harmful tax practices
  • Accelerating the UAE’s development and transition to achieve its strategic objectives

The new tax will support the government finances and will add to its revenue sources and there will definitely be more income at federal level to reinvest back into the economy as it has already done during the pandemic to support economic recovery.

There will still be no tax on personal incomes from employment, real estate and other investments, or on any other income earned by individuals that does not arise from a business or other form of commercial activity licensed or otherwise permitted to be undertaken in the UAE.  Businesses involved in the extraction of natural resources oil and gas production will be exempt, as they are subject to emirate-level taxation already.

Foreign investors who do not carry-on business in the UAE will not be subject to corporate tax.

UAE businesses will be exempt from paying tax on capital gains and dividends received from qualifying shareholdings.

Free zones should retain their competitive tax advantages – to be confirmed.

Businesses will be given ample time to prepare for the introduction of corporate tax.

We should know much more about this announcement by mid-2022, but in the meantime, please do reach out to us should you need to discuss this important topic.

 

Thank you.

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