What is the corporate tax?
Recently, the UAE Ministry of Finance announced the federal corporate tax which will be applicable on fiscal years starting from the 1st of June 2023. That day marks the start of the tax year 2023.
Understandably, businesses have concerns and queries regarding the fulfilment and other facets of this new tax law. We’ll try to explain and dispel any confusion you might have about the CT law.
What are Applicable Rates?
There is a 0% tax on income from AED 0 to 375,000 while a tax rate of 9% is levied on any amount exceeding AED 375,000. Free zone businesses will be required to file a tax return but maintain their exemption status if they comply with certain rules and do not carry out business in mainland UAE.
This tax will be payable on the net profit stated in the financial statements whereas losses from the corporate tax will be carried forward into the next tax year to balance out taxable income for the future fiscal years.
What exemptions will be granted from the corporate tax?
The following sources of income for individuals will be classed as those upon which corporate tax will not apply:
- Employment income
- Income from savings
- Return on investments
- Income from real estates
Any other income which is directly related to a business and is an individuals’ earning in a personal capacity.
Moreover, capital gain, dividends paid and other investment return earned by foreign investors. This was done so in a bid to improve investment in the country
For corporations and businesses, exemptions will be granted on:
- Capital gain and dividends from qualifying shareholdings
- Intra-group transactions
Will businesses inside the UAE receive tax credits?
The answer to that is yes, foreign tax credits will be availed to those businesses that pay taxes on income earned outside the UAE. Also, withholding tax will be forgone for businesses making interest payments, dividends and royalties domestically and across the border.
How will tax returns be filed?
The corporate tax will have to be filed electronically for each financial period and without the requirement of advance corporate tax payment based on provisional tax returns.
Outcome and Main Takeaways
The main features of the anticipated corporate tax like the 0% tax for SMEs and start-ups, exemptions for HQs based in the UAE and international business hubs, no tax on foreign direct investment, no tax on an individual’s income, and a minimal compliance burden for businesses, should solidify the UAE’s standing as a central hub for business, investment and also as a leading international financial centre.