The Ground-Breaking Corporate Tax Law Comes into Effect from July 1, 2023

In January 2022, UAE announced a ground-breaking law – the Federal Corporate tax (CT) on the net profit of businesses. The tax will come into effect on July 1, 2023 or after (January 1, 2024) depending on the financial year the business follows. Here is everything you need to know about CT.

What is Corporate Tax?

 UAE’s Federal Decree-Law No. 47 of 2022 on taxation of corporations and businesses is a form of direct tax levied on the net profit or income of businesses. Through the corporate tax, UAE aims to position itself as one of the leading hubs for investments and businesses. CT will also accelerate the development and transformation of the country and will also reaffirm its commitment to meet global standards for tax transparency. The Corporate Tax will eliminate illegal and harmful tax practices as well, which will be a relief to businesses.

Who will be paying the CT?

The Federal Corporate Tax will apply to:

• All individuals and businesses and running business activities under a commercial licence in the UAE
• Free zone businesses
• Foreign entities and individuals only if they are running a business or trade in the UAE on a regular manner
• Banking operations
• Businesses engaged in real estate management, construction, development, agency and brokerage activities.

Who are exempted from CT?

The following entities are exempted from the Corporate Tax:

• Businesses engaged in the extraction of natural resources
• Dividends and capital gains earned by a UAE business from its qualifying shareholdings
• Qualifying intra-group transactions and reorganizations, provided the necessary conditions are met.
• Individual earnings salary and other employment income
• 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.

What are the CT Rates?

On profits beyond AED375,000, a regular rate of 9% will be applied to taxes. Small and new enterprises, however, will be exempted if their profits fall below the above-mentioned amount. Large multinationals that meet specific criteria set with reference to 'Pillar two' of the OECD Base Erosion and Profit Shifting Project will have to pay a different tax rate, which is not yet specified.

Federal Tax Authority (FTA) will be responsible for the administration, collection and enforcement of the CT. More details on the Corporate Tax will be provided by the FTA soon, before it comes into effect.