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The UAE government issued on Friday a new decree for the implementation of the country’s corporate tax law which will take effect next year.
Under the new tax regime, corporations and other businesses with taxable profits exceeding AED 375,000 ($102,000) will be mandated to pay a standard rate of 9% on or after June 2023.
According to the Ministry of Finance, the corporate tax will help the UAE achieve its development and transformation ambitions. The rate is said to be the lowest in the Gulf Cooperation Council (GCC) region.
Here is all you need to know about the new corporate tax:
Who will pay the corporate tax?
Businesses that earn taxable net profit of more than AED 375,000 will be required to pay corporate tax. These include UAE companies that are incorporated or managed and controlled in the UAE, as well as some entities in a free zone.
Exemptions
Individuals who are employed in the government, semi-government or private sector will not be required to pay the corporate tax. Earnings made from bank deposits or savings schemes, as well as real estate investments made by individuals, will not be subject to the new tax.
Public or private pension and social security funds, qualifying investment funds, as well as wholly-owned and controlled UAE subsidiaries of a government entity, government-controlled entity, can get an exemption, subject to meeting certain conditions.
Existing free zone entities will be eligible to benefit from a zero percent corporate tax rate on qualifying income.
Natural resource extraction activities are exempt as well, but they remain subject to existing local taxation.
When will the corporate tax take effect?
The Ministry of Finance said that the new tax will be effective for financial years starting on or after June 1, 2023.
A company or entity whose financial year starts on July 1, 2023 and ends on June 30, 2024 will have to pay the new tax from July 1, 2023.
A company or entity whose financial year starts on January 1, 2023 and ends on December 31, 2023 will have to pay the tax from January 1, 2024.
Will entities in the UAE that are owned by GCC or UAE citizens pay tax?
The tax applies to entities that fall within the income threshold of AED 375,000. The law does not differentiate between nationality or residence, so it applies to any entity irrespective of the citizenship or residence of the founders or owners.
Will the new tax be implemented across the UAE?
The new corporate tax will be implemented across all the emirates in the UAE.
Will entities pay other taxes as well?
According to the Ministry of Finance, some businesses may still be subject to both the corporate tax and “Emirate level taxation”. Emirate level taxes paid will not be credited against or otherwise reduce the amount of corporate tax payable.
However, businesses that are engaged in certain activities like the extraction of natural resources in the UAE, which are subject to “Emirate level taxation”, will be outside the scope of the corporate tax. But these businesses are still required to meet “certain conditions”.
Will the corporate tax replace VAT?
The value-added tax (VAT) is a different type of tax. It will continue to be collected in the UAE. If an entity is mandated to pay VAT and corporate tax, it will have to pay the taxes separately. Those that are not VAT registered may still be subject to pay corporate tax.
What about excise tax, will it be replaced by corporate tax?
This is another form of tax. Excise tax will continue to be collected in the UAE.
(Reporting by Cleofe Maceda; editing by Mily Chakrabarty)
