@9% Implementation & Applicability
The UAE Ministry of Finance recently introduced the Federal Corporate tax of 9% on business profits with a threshold of AED 375,000. The Corporate Tax shall be effective for financial years starting on or after 1st June 2023.
The Corporate Tax shall be levied on the net income/profits of corporations and other entities from their business.
The Corporate Tax shall apply to:
- All businesses and individuals conducting business activities under a commercial licence in the UAE
- Free zone businesses (The UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business set up in the UAE’s mainland.)
- Foreign entities and individuals only if they conduct a trade or business in the UAE in an ongoing or regular manner
- Banking operations
- Businesses engaged in real estate management, construction, development, agency, and brokerage activities.
However, there are some exemptions from the Corporate Tax, following the below rules:
Businesses engaged in the extraction of natural resources are exempt from CT as these businesses will remain subject to the current Emirate level corporate taxation.
Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from CT.
Qualifying intra-group transactions and reorganizations will not be subject to CT, provided the necessary conditions are met.
In addition to the above, the Corporate Tax will not apply to:
- an individual earnings salary and other employment income, whether received from the public or the private sector
- interest and other income earned by an individual from bank deposits or saving schemes
- a foreign investor’s income earned from dividends, capital gains, interest, royalties, and other investment returns
- investment in real estate by individuals in their personal capacity
- dividends, capital gains and other income earned by individuals from owning shares or other securities in their personal capacity.
As per the information shared by the UAE Ministry of Finance, the rate of the Corporate Tax shall be as follows:
- 0 per cent for taxable income up to AED 375,000
- 9 per cent for taxable income above AED 375,000 and
- a different tax rate (not yet specified) for large multinationals that meet specific criteria set with reference to ‘Pillar two’ of the OECD Base Erosion and Profit Shifting Project.
Get in touch with our tax experts and find out how your business will be impacted the new tax regime and what you can do to prepare your businesses to avoid any penalties for non-compliance.
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