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Corporate tax (CT) in the UAE is effective from June 1, 2024. The regulating authorities have introduced their corporate tax for the first time in the country's history.
Before this change, businesses in the UAE enjoyed zero corporate and income tax. However, the introduction of corporate tax signifies a shift toward a more diversified revenue model for the government.
The CT rate is set at 9%. It is important to note that this tax primarily applies to certain types of businesses, such as those engaged in the oil and gas sector, banking, and tobacco manufacturing. Most small and medium-sized enterprises (SMEs) remain exempt from the corporate tax.
The CT will apply to financial years commencing on or after June 1, 2024.
For companies with a fiscal year starting on June 1, 2024, and ending on May 31, 2024, CT will be applicable starting from June 1, 2024. The initial tax return filing is expected to be required by late 2024.
For companies following the calendar year, beginning on January 1, 2024, and concluding on December 31, 2024, CT will come into effect on January 1, 2024. The filing deadline for such companies is likely to fall around mid-2025.
CT applies to various legal entities in the UAE, including LLCs, PSCs, PJSCs, LLPs, and more. Additionally, foreign legal entities generating income in the UAE and holding tax residency are subject to taxation. However, free zones enjoy a 0% corporate tax rate if they adhere to regulatory requirements, even when engaging in trade with the mainland. Corporate tax policies can also affect both non-residents and residents of the UAE.
Dividend income received or shares of a subsidiary company are sold; CT regulations will incorporate a participation exemption.
Additionally, CT exemptions are granted to charities, public benefit organizations, and investment funds, businesses involved in oil and resource extraction, and wholly government-owned companies.
For business earnings lower than AED 375,000, no CT will be charged.
A corporate tax of 9% will be imposed on income exceeding AED 375,000.
Larger multinational corporations with distinct business circumstances may be subject to varying tax rates.
Companies registered within Free Trade Zones do not engage in transactions with Mainland UAE.
As long as such companies do not conduct business with the mainland, they shall be subject to zero percent tax (or be exempt, as the case may be). However, all free zones have to file an annual CT return.
Businesses that have a presence in both Mainland UAE and Free Trade Zones should consider the impacts of the new CT on their operating model.
The Transfer Pricing Rules proposed by the Organization for Economic Cooperation and Development (OECD) shall now be applicable in the UAE. Affected businesses will need to comply with rules and documentation requirements defined with reference to the OECD guidelines, which are underpinned by the ‘Arm’s Length Principle’.
The expected Transfer Pricing rules will be applicable to intra-group transactions for entities subject to CT in the UAE.
Yes, CT grouping and group relief provisions are allowed.
Business entities in the UAE may have the option to submit consolidated tax returns, with the possibility of offsetting tax losses within group entities.
Withholding Tax (WHT) paid outside of the UAE will be allowed as a CT credit against the taxable entities’ foreign corporate tax paid on UAE taxable income.
FocusConsult is a specialized consultancy service offered by Focus Softnet to provide its clients with expert advisory services on various aspects of taxation.
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