In July 2021, the UAE Ministry of Finance (“MOF”) confirmed the UAE supports the global minimum effective tax rate under the Organisation for Economic Co-operation and Development (“OECD”)/G20 Base Erosion and Profit Shifting (“BEPS”) 2.0 project.
Subsequently, the MOF has announced that Corporate Tax (“CT”) will commence in the UAE for financial years starting on or after 1 June 2023. As most businesses in the UAE follow the December 31 year-end, we expect CT to first apply from 2024.
Here are some examples on the implementation dates:
- A business that has its financial year starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE CT from 1 July 2023 (which is the beginning of the first financial year that starts on or after 1 June 2023)
- A business that has a (calendar year) financial year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE CT from 1 January 2024 (which is the beginning of the first financial year that starts on or after 1 June 2023)
It is expected that the CT will apply across all Emirates, as it is a Federal Tax and the UAE Federal Tax Authority (“FTA”) will be responsible for the administration, collection, and enforcement of UAE CT. The MOF will remain the authority for purposes of bilateral/multilateral agreements and the international exchange of information for tax purposes.
The taxable income will be the accounting net profit of a business, after making adjustments for certain items to be specified under the UAE CT law and regulations. The accounting net profit of a business is the amount reported in the financial statements prepared in accordance with internationally acceptable accounting standards.
The CT rates are:
- 0% for taxable income up to AED 375,000;
- 9% for taxable income above AED 375,000; and
- A different tax rate for large multinationals that meet specific criteria set with reference to ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project
A multinational corporation is a corporation that operates in its home country, as well as in other countries through a foreign subsidiary, branch or other form of presence or registration. Simply earning income from outside its home country without a foreign presence or registration would not make a business a multinational corporation.
In the context of the global minimum effective tax rate as proposed under ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project,” large” refers to a multinational corporation that has consolidated global revenues in excess of EUR 750m (c. AED 3.15 bn).
Free zone businesses will be subject to UAE CT, but 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 with mainland UAE.
Most interestingly, the introduction of CT will pave the way for UAE businesses to address transfer pricing rules and related documentation that will need to comply in reference to the OECD Transfer Pricing Guidelines.
As further information is released (including the Executive Regulations), rest assured that we will remain abreast of further developments on CT and our tax team will be more than happy to assist including reviewing existing systems, operating procedures, and corporate governance structures in place will be sufficient to address the added compliance requirements of the new CT, including the existing VAT in the UAE.
Our team draws its expertise from almost 40 years of local experience in the UAE and in conjunction with our global BKR International member firms, many of which are based in established corporate tax jurisdictions, we are able to provide comprehensive tax services from planning and implementation tax advisory to ongoing reporting, compliance, and filing of returns.
Disclaimer on Use
The information presented is intended for general information only and is not meant to be a substitute for professional advice or to be used for decision-making.
Professional advice relies on an assessment and understanding of the specific situation for each person and, therefore, the application of changing laws and regulations in the UAE, will vary widely from case to case.
The information contained herein is based on facts available from sources we believe to be credible at the time of publication and is subject to change.