Corporate Tax

Recently, the Ministry of Finance (‘MOF’) proposed a Corporate Tax (‘CT’) to be implemented with effect from 1 June 2023 across all the Emirates. Further, it is also anticipated the rate at which CT is proposed is lowest amongst all the countries in the world. Presently, it is proposed that CT will be levied @ 9 % on the accounting profits arrived at after giving effect of certain adjustments and considering the prescribed conditions. The details legislations are not yet published and thus in the meantime, MOF has published Press Release and Frequently Asked Questions (‘FAQs’) on the website of MOF and Federal Tax Authority (‘FTA’).

The Key attributes of CT are as outlined below:
CT to be effective from financial years commencing from 1 June 2023. However, a business following calendar year as their financial year starting from 1 January 2023 and ending on 31 December 2023 will become subject to CT effective 1 January 2024

CT will be levied @ 9% on taxable income/profits (after certain adjustments) exceeding AED 375,000
CT will not be levied on following:

• Income earned from Salary
•  Income arising from Real Estate activities by individual in their personal capacity
•  Dividend income, Capital Gains and other income earned from owning shares or other securities by individual in their personal capacity
•  Interest and other income earned by an individual from bank deposits or saving schemes
•  Foreign investors earning income from investing activities
•  Businesses engaged in the extraction of natural resources are who are subject to emirate level corporate taxation
•  Qualifying intra-group transactions and reorganizations subject to prescribed conditions

Free Zone businesses will also be subject to CT subject to that they do not undertake business with UAE mainland. However, the present incentives will continue
Concept of ‘Fiscal unity’ is introduced thereby Tax Group can be formed like for all the group entities of UAE companies like VAT, thereby they will be subject to annual single CT return filing
No provision as of now for withholding of tax or advance tax.
Business loss will be allowed to be carried forward for off-setting against the future business profits. Clarity awaited in respect of number of years to which such business losses will be carried forward. Further, such losses will also be allowed to be adjusted against the business profits of group entities, if Tax Group is formed.
Foreign CT paid on UAE taxable income will be allowed as a tax credit against the CT liability
UAE businesses will need to comply with transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing Guidelines
In terms of compliance, submission of only single annual return is proposed

FTA has issued frequently asked questions that can be accessed at https://tax.gov.ae/en/faqs

With the introduction of tax regime in and around UAE and KSA, it was of paramount importance that business houses geared up themselves for getting align with the tax laws and undertake tax compliances in an appropriate manner.