% tax rate for taxable income up to Dh375,000 to support small business and startups
The Ministry of Finance has announced that the UAE will introduce a federal corporate tax on business profits that will be effective for financial years starting on or after June 1, 2023.
Businesses will become subject to UAE corporate tax from the beginning of their first financial year that starts on or after June 1, 2023.
The UAE corporate tax regime has been designed to incorporate best practices globally and minimise the compliance burden on businesses.
Corporate tax will be payable on the profits of UAE businesses as reported in their financial statements prepared in accordance with internationally acceptable accounting standards, with minimal exceptions and adjustments.
TAX ON BUSINESS AND COMMERCIAL ACTIVITIES
The corporate tax will apply to all businesses and commercial activities alike, except for the extraction of natural resources which will remain subject to Emirate level corporate taxation.
With a standard statutory tax rate of 9 percent and a 0 per cent tax rate for taxable profits up to Dh375,000 to support small businesses and startups, the UAE corporate tax regime will be amongst the most competitive in the world.
TAX ON INDIVIDUAL INCOME
No corporate tax will apply on personal income from employment, real estate and other investments, or on any other income earned by individuals that does not arise from a business or other form of commercial activity licensed or otherwise permitted to be undertaken in the UAE.
FREE ZONE COMPANIES
Recognizing the contribution of free zones to the UAE’s economy and competitiveness, the UAE corporate tax regime will continue to honor the corporate tax incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE.
Given the position of the UAE as a global financial center and an international business hub, the UAE will not impose withholding taxes on domestic and cross border payments, or subject foreign investors who do not carry on business in the UAE to corporate tax.
CAPITAL GAINS AND DIVIDENDS
As an international headquarter location, a UAE business will be exempt from paying tax on capital gains and dividends received from its qualifying shareholdings, and foreign taxes will be allowed to be credited against UAE corporate tax payable.
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.