UAE to Impose Corporate Tax From January 2022

The UAE’s Ministry of Finance stated on Monday that a federal corporate tax on business profits will be implemented for financial years beginning on or after June 1, 2023. From the start of their first financial year on or after June 1, 2023, businesses will be subject to UAE corporate tax.

The UAE corporate tax regime has been designed to embrace best practises globally and minimise the compliance burden on firms, according to a press statement issued on January 31st.

“With minor exceptions and modifications, corporate tax will be payable on the profits of UAE enterprises as recorded in their financial statements prepared in conformity with internationally recognised accounting standards.” The corporate tax would apply to all firms and commercial operations, with the exception of natural resource extraction, which will continue to be taxed at the Emirate level,” it stated.

“The UAE corporate tax structure will be among the most competitive in the world,” according to the press release, “with a basic statutory tax rate of 9% and a 0% tax rate for taxable profits up to AED375,000 to encourage small enterprises and startups.”

Personal income from employment, real estate, and other investments, as well as any other income earned by individuals that does not arise from a business or other form of commercial activity licenced or otherwise permitted to be conducted in the UAE, will be exempt from corporate tax, according to the press release.

“As a premier jurisdiction for innovation and investment, the UAE plays a critical role in assisting local and global company growth.” The UAE’s position as a world-leading hub for business and investment will be cemented by the certainty of a competitive and best-in-class corporate tax regime, along with the UAE’s large double tax treaty network,” said Younis Haji Al Khoori, Undersecretary of the Ministry of Finance.

“With the implementation of corporate tax, the UAE underlines its commitment to achieving international standards for tax transparency and avoiding harmful tax practises,” Younis Haji Al Khoori continues. The regime will allow the UAE to address the challenges posed by the global economy’s digitalisation as well as other remaining BEPS [Base Erosion and Profit Shifting] concerns, as well as implement its support for the introduction of a global minimum tax rate by applying a different corporate tax rate to large multinationals that meet specific criteria set with reference to the above initiative.

Recognizing the importance of free zones to the UAE’s economy and competitiveness, the UAE corporate tax system would maintain the corporation tax incentives now available to free zone enterprises who meet all regulatory requirements and do not do business with the rest of the UAE.

Due to the UAE’s status as a global financial centre and international business hub, it will not levy withholding taxes on domestic and cross-border payments, nor will it levy corporate tax on foreign investors who do not conduct business in the UAE.