The UAE issues a federal law on corporate and business tax
The UAE issued Federal Decree-Law No. (47) of 2022 regarding corporate and business tax, provided that businesses in the country are subject to corporate tax starting from its first fiscal year starting on or after June 1, 2023.
According to the law, the “corporate tax” is set at 9 percent on taxable income that exceeds AED 375,000, and at zero percent on the part of taxable income that does not exceed that amount.
The Ministry of Finance confirmed that the federal law on corporate and business tax constitutes an important step in the framework of strengthening an integrated tax system that supports the strategic goals of the UAE, enhances its global economic competitiveness, and provides the national economy with sufficient flexibility to deal with and support international financial systems within the framework of existing partnerships with The state.
The ministry indicated that the corporate and business tax law in the country was developed taking into account the best international practices to promote investments and ensure that the principles contained in the law are widely understood.
As well as in order to implement the new tax system in a manner that guarantees more efficiency and transparency based on the diversification of the country's economy and in order to ensure the promotion of sustainable development.
To this end, the Ministry has involved all relevant stakeholders through public consultation and solicited comments and opinions in the final design of the corporate and business tax system.
The Ministry of Finance added that setting a zero percent rate on the part of the taxable income that does not exceed 375,000 dirhams comes in appreciation of the vital role played by start-ups and small companies in the UAE economy, and the basic 9% tax rate ensures that the corporate tax system in the UAE is among the most important. The most competitive system in the world, which contributes to strengthening the position of the UAE as a financial center and a global business center.
The corporate tax law reflects the UAE's keenness to enhance its international contribution and support the Organization for Economic Cooperation and Development in its commitments to set a global minimum tax for the profits of multinational companies, enhance tax transparency and prevent harmful tax practices, and enhance its active contribution to the initiative to combat the erosion of the tax base.
The law provided for strictly defined exemptions from corporate and business tax.
For example, the activities of extracting natural resources in the country are exempted from corporate tax, but at the same time they remain subject to tax at the local emirate level.
In addition to other exemptions for government agencies, pension funds, investment funds and public benefit institutions, due to their vital importance and contribution to the social fabric of the country.
In recognition of the vital role companies operating in free zones play in supporting the UAE economy, existing free zone entities will be eligible to benefit from a corporate tax rate of 0% on qualifying income.
The corporate and business tax system's compliance and management requirements are also designed to suit different categories of taxpayers, given the variety of businesses that will fall under the new corporate and business tax system.
In addition, the corporate and business tax system offers important facilities for transfers and restructuring within the group and allows group companies to use each other's available tax losses.
Under the provisions of the law, corporate and business tax in the UAE will not be applied to an individual's salary or any other income earned from a job he holds, whether it is earned from work in the government, semi-government or private sector.
Interest and other personal income earned from interest and other types of income from bank deposits or savings schemes are not subject to corporate and business tax, as are investment in real estate by individuals in their personal capacity.
The Ministry of Finance will continue to act as the regulatory authority for the purposes of bilateral agreements and the exchange of information at the international level for tax purposes, while the Federal Tax Authority will be responsible for managing, collecting and enforcing the law and provisions related to corporate and business tax.
For more information, please visit the corporate tax page on the official website of the Ministry of Finance by clicking on the following link:
https://mof.gov.ae/corporate-tax-ar/
To view the file of frequently asked questions on corporate and business tax and Federal Decree-Law No. (47) of 2022 regarding corporate and business tax, please visit the following link on the official website of the Ministry of Finance:
https://mof.gov.ae/corporate-tax-faq -ar/
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