The UAE is to impose a nine percent corporate tax on businesses, effective next year, according to a statement published by state news agency WAM.
A statement from the Ministry of Finance (MoF), published on the WAM Twitter feed, said the federal corporate tax will be effective for financial years starting on or after 1st June 2023.
There will be a standard statutory tax rate of nine percent for corporate profits above AED 375,000 ($102,000) with profits below that taxed at zero percent, in a move to support small businesses, the statement said.
The statement said no corporate tax will apply to income from employment, real estate or other investments, or any other income that does not arise from business or commercial activity licensed or otherwise permitted to be undertaken in the UAE.
The new corporate tax regime will continue to honour free zone incentives, recognising the contribution the zones make to the UAE economy, the MoF told WAM, saying those that comply with all regulations and do not do business with mainland UAE companies will still benefit from free zone incentives.
The incentives to free zones across the UAE include 100 percent foreign ownership, 100 percent repatriation of capital and profits, import and export tax exemptions and exemption from income and corporate tax.
Younis Haji Al Khoori, Undersecretary of the Ministry of Finance, said the new regime will help the UAE to address the challenges arising from the digitalisation of the global economy as well as those arising from Base Erosion and Profit Shifting (BEPS) concerns.
It will also execute the country’s support for the introduction of a global minimum tax rate by applying a different corporate tax rate to large multinationals that meet specific criteria Al Khoori said in a statement to stage news agency WAM.
He said: “The certainty of a competitive and best in class corporate tax regime, together with the UAE’s extensive double tax treaty network, will cement the UAE’s position as a world-leading hub for business and investment", adding: “With the introduction of corporate tax, the UAE reaffirms its commitment to meeting international standards for tax transparency and preventing harmful tax practices.”
Withholding tax will not be imposed on domestic or cross border payments, and, foreign investors who do not carry out business in the UAE will not be subject to the new tax.
UAE businesses will be exempt from paying tax on capital gains and dividends received from qualifying shareholdings and foreign taxes will be allowed to be credited against payable corporate UAE tax.
“The UAE corporate tax regime will have generous loss utilisation rules and will allow UAE groups to be taxed as a single entity or to apply group relief in respect of losses and intragroup transactions and restructurings,” the Ministry said, adding that the regime will ensure compliance burden is kept to a minimum for businesses that prepare and maintain adequate financial statements.
“Businesses will only need to file one corporate tax return each financial year and will not be required to make advance tax payments or prepare provisional tax returns,” it added, concluding that businesses will be given ample time to prepare.
(Writing by Imogen Lillywhite; editing by Seban Scaria)
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