“Finance”: According to the proposed basis for the system in a consultative paper

“Residence” in the country is a prerequisite for “business” being subject to corporate tax

«Finance»: The corporate tax will be applied from June 2023. Archive

The Ministry of Finance said that the proposed basis for the corporate tax system defines “residence” as a prerequisite for business profits to be subject to tax, but this does not prevent non-residents from being subject to it in two cases.

legal person

In a consultative paper issued to gather stakeholders' views on the proposed corporate tax system, the ministry stated that "for residents, residency is a major determinant of whether business profits will be subject to corporate tax in the UAE."

She explained that a legal person incorporated in the UAE will automatically be considered a “resident” person for the purposes of corporate tax in the country, and any natural person who conducts business or commercial activity in the UAE, either in his own name, or through a joint coalition, is also considered A resident person, for the purposes of the corporate tax system.

foreign company

The “Finance” added in its consultative paper that “a foreign company can be treated as a resident person, if it is effectively managed and controlled in the UAE,” noting that determining whether an entity is effectively managed and controlled in the UAE is a real issue, but It usually looks at where managers or other decision makers are making major managerial and business decisions.

And she continued: "People residing in the UAE are subject to corporate tax in the country on their income around the world, which for a natural person will be limited to income earned from business activity that is originating in the UAE."

Exemption from the system

And the Ministry of Finance added: “However, some income earned from abroad can be exempted from the corporate tax system, including income from foreign branches and qualified foreign shares, to avoid double taxation, and to recognize the UAE’s position as an international business center and a leading location for holding companies. The corporate tax system will provide tax exemptions for certain types of income.”

And she continued, "The main exemptions from the corporate tax system relate to the income generated by companies located in the UAE from investments in other companies, and from operations outside the country through foreign subsidiaries and foreign branches."

She added: "When income earned from abroad is not exempt, income tax paid in another country can be considered as a foreign tax credit deductible from corporate tax payable in the UAE on the relevant income, to prevent double taxation."

non-residents

The Ministry of Finance indicated in its paper that non-residents will be subject to corporate tax on taxable income from the permanent establishment in the UAE, and income obtained from the UAE.

corporate tax

• The corporate tax will be applied in the country, starting from the first of June 2023, and it is a form of direct tax imposed on the net income or profit achieved by companies and other “businesses”.

In other countries, corporate tax is referred to as "corporate income tax" or "business profit tax".

According to what the Ministry of Finance announced, the corporate tax rate will be: 0% for taxable income up to 375,000 dirhams, 9% for taxable income over 375,000 dirhams, and a different tax rate for large multinational companies that meet specific criteria that are set according to the “pillar.” The second is the Base Erosion and Profit Shifting Project of the Organization for Economic Cooperation and Development.

Exemption of some income earned from abroad from the corporate tax system, to avoid double taxation.

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