UAE to implement Corporate Tax from 2023

HLB HAMT News Team

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    The United Arab Emirates has decided to introduce federal tax on corporate revenues for the financial year starting on or after June 2023. Companies have to pay a standard statutory tax rate of 9%, which would apply only when income topped Dh375,000 ($100,000) ultimately positioning the UAE in a powerful advantage when considered against other major and established economies throughout the world.

    The proposed model, which is due to take effect from next year, will apply to all economic activity in the UAE excluding natural resource exploitation, according to a statement from the finance ministry. Although this regime would not be applicable to those firms functioning inside free zones in the UAE, they will remain immune as long as they don’t conduct business with the mainland.

    The key objectives for corporate tax introduced in the UAE are as follows:

    • Boosting the UAE’s prominence as a global commercial and investment centre
    • Achieving International tax transparency standards and avoiding fraudulent practices
    • Accelerating the UAE’s development to align itself with global markets

    The UAE’s well-known tax haven status has received extensive reception from international corporations and rich individuals, allowing the country’s economy to diversify beyond oil and gas income, particularly in commercial and recreational heartland of Dubai.

    Key takeaways

    Personal income from work, real estate, and other investments, as well as any other income generated by people that is not derived from a business or other kind of commercial activity licensed or otherwise authorised to be conducted in the UAE, would be tax-free

    • Capital gains and dividends earned by a UAE firm from its qualified shareholdings will not be subject to corporate tax
    • Foreign tax will be credited against the corporate tax due in the UAE
    • On both domestic and cross-border payments, there will be no withholding tax
    • Free zone businesses that meet all necessary requirements can continue to benefit from corporate tax incentives.
    • Foreign investors that do not conduct business in the UAE will be exempt from corporate taxes.
    • Qualifying intragroup transactions and restructurings will be exempt from corporate tax.
    • Businesses will only have to submit one corporate tax return every fiscal year, and they will no longer have to make prior tax payments or produce provisional tax filings. UAE enterprises will be subject to transfer pricing and documentation procedures based on OECD transfer pricing principles.
    • Businesses engaged in the “extraction of natural resources” — such as oil and gas production — will be excluded since they are taxed at the emirate level.
    • Generous loss transfer and utilization rules will be available to businesses.

    Previously, the UAE’s corporate taxes solely belonged to limited industries, which were subject to a 20% tax. While personal income tax is not yet implemented in the Gulf, the UAE government’s recent actions can be considered as a strategic approach toward leading economies across the globe seeking to impose a minimum tax on corporations and to end the illicit tax activities of business giants.

    Conclusion

    With the introduction of corporate tax, the UAE reaffirms its commitment to meeting international standards by diversifying its economy to reduce its reliance on crude oil and also to tackle the rising competition from other economies, thereby pursuing its own drive to attract foreign businesses.

    If you have any questions or concerns about the newly proposed federal corporate tax regime, HLB HAMT, one of the leading tax consultants in the UAE, will provide the necessary assistance.

    Contact us at tax@hlbhamt.com

     

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