What is corporate tax?
Corporate tax is a tax levied on the net profit/income of the company.
What is the rate of corporate tax applicable in U.A.E?
The rate of corporate tax that will be applicable on net profits of a company is 9 %.
What are the slabs for corporate tax?
| Net income (In AED) | % of Corporate Tax applicable |
| 0 – 375,000 | 0 % |
| Above 375,000 | 9 % |
| For Multinational Companies (Those companies which have a consolidated group revenue exceeding AED 3.15 Billion) | A tax rate differing from the Corporate tax rate stipulated will be charged (In accordance with the guideline from OECD – Pillar 2 minimum 15% effective tax rate is suggested. |
When will the U.A.E Corporate Tax be effective from?
The U.A.E Corporate Tax regime will be effective from 01st June, 2023 & therefore any company whose financial year begins after 01st June, 2023 will be subject to U.A.E Corporate tax.
For example:
- B Company that has a 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).
- C company 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).
How will corporate tax be charged?
Let’s take an example –
Suppose a company has earned a taxable income of AED 500,000. The corporate tax will be charged as follows:
| Amount (In AED) | Tax liability (In AED) |
| 0 – 375,000 | 0 |
| Taxable income exceeding 375,000 i.e. 500,000 – 375,000 = 125,000 | 125,000 * 9% = 11,250 |
Therefore the corporate tax liability of the company will be AED 11,250 for the year.
The final amount of UAE CT payable will be reduced by any foreign taxes incurred on the relevant income.
Are businesses required to pay tax in advance?
Businesses will not be required to make advance payments for UAE Corporate Tax.
What are the consequences of Non – compliance with UAE Corporate Tax regime?
Just like other taxes in UAE if the companies fail to comply with UAE Corporate Tax regime they will be subject to penalties. The details of such penalties will be received in due course.
EXEMPTIONS FROM CORPORATE TAX
Will corporate tax be charged to all companies in the U.A.E or are there any exceptions?
UAE Corporate Tax will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation (This is yet to be disclosed by the relevant government authorities).
Is there any income that will be exempt from Corporate Tax?
Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from UAE CT.
What is a qualifying shareholding?
A qualifying shareholding refers to an ownership interest in a UAE or foreign company that meets certain conditions to be specified in the UAE CT law.
EXEMPTION FROM CORPORATE TAXATION ON INDIVIDUAL LEVEL
Are individual’s salaries subject to Corporate Tax?
Corporate tax will not apply to an individual’s salary whether received from the public or private sector).
Will an individual who has a commercial license to carry out a business activity be subject to Corporate Tax?
All the business income earned under a commercial license will be subject to Corporate Tax.
Will an individual who has invested in Real Estate be subject to UAE Corporate Tax?
Investment in real estate by individuals in their personal capacity should not be subject to UAE CT provided the individual is not required to obtain a commercial license or permit to carry out such activity in the UAE.
Will income earned by an individual from bank deposits be subject to UAE CT?
Interest and other income earned by an individual from bank deposits or saving schemes will not be subject to UAE CT.
CORPORATE TAXATION ON FREE ZONE ENTITIES
Will entities based in free zones be subject to Corporate Tax?
Entities based in Free Zones will be subject to corporate tax. However the UAE Corporate tax regime will continue to provide the Corporate Tax incentives to those free zone businesses which meet the regulatory requirements & that do not conduct business with the mainland UAE.
Is there going to be any treatment difference in Corporate Tax being applied to Financial Free Zones?
UAE Corporate tax treatment will remain the same across all the Free Zones in UAE.
LOSSES
Will the UAE CT regime allow prior year losses to reduce future taxable income?
The UAE Corporate Tax regime will permit a business to use losses incurred (as from the UAE CT effective date) to offset taxable income in subsequent financial periods.
A tax loss for CT purposes would arise when the total deductions the businesses can claim are greater than the total income for the relevant financial period.
Will excess CT losses be allowed to be carried forward and used in future years?
Excess tax losses may be carried forward and used against taxable income in future years, provided certain conditions are met. The information relating to the carry forward of tax losses will be provided by the relevant government authorities in due course.
Will a group be able to utilize the tax losses of one Group Company against the taxable income of another group company?
Tax losses from a Group Company may be used to offset taxable income of another group company, provided certain conditions are met further information on the group loss utilization rules will be provided in due course.
TAX CREDITS
Will the foreign Corporate Tax paid for the UAE Taxable income be considered under the UAE Corporate Tax regime?
Foreign Corporate Tax paid on UAE taxable income will be allowed as a tax credit against the UAE Corporate Tax liability.
For further information on corporate tax please visit the following government portal – https://www.mof.gov.ae/en/resourcesAndBudget/Pages/faq.aspx
