UAE issues law on 9% corporate tax, reveals exemptions
Tax shall be imposed on profits accrued and not on the total turnover.
The UAE on Friday issued a corporate tax law, under which a nine per cent tax rate will be applicable on companies posting a profit of above Dh375,000.
The tax will be applicable to businesses in UAE from the financial year commencing on or after June 1, 2023.
The threshold of Dh375,000 has been included in order to support small and medium enterprises, and startups and make the economy more competitive.
It’s pertinent to note that the corporate tax shall be imposed on profits accrued and not on the total turnover of the business.
Importantly, the corporate tax will not be applied to individuals’ salaries or their income from employment. In addition, personal income earned from bank deposits or savings programmes and investments in real estate by individuals in their personal capacity are also not subject to the tax.
Corporate tax on businesses is levied in almost every country in order to diversify the revenues of the governments.
The Ministry of Finance said that the Federal Decree-Law No.47 of 2022 on the Taxation of Corporations and Businesses will help build an integrated tax regime to enhance UAE’s global economic competitiveness and support international financial systems within the framework of the UAE’s established partnerships.
According to the law, free zone companies in UAE which fulfil all conditions specified in the Executive Regulations of the UAE Corporate Tax Law will be exempt from corporate tax.
Natural resource extraction activities are also exempted but they’re subject to existing emirate-level taxation. Government entities, pension funds, investment funds and public benefit organisations are also beyond the scope of corporate tax.
The corporate tax shall be imposed on taxable persons which includes residents, certain non-residents and free zone persons generating profits of over Dh375,000 per annum.
The non-residents are also subject to nine per cent of tax if they have a permanent establishment in UAE as well as income from the sale of goods, provision of services etc. in the country.
All taxable persons shall be obligated to maintain records and documents for seven years following the end of the tax period.
Under the law, annual corporate tax returns will be required to be filed by all taxable persons no later than nine months from the end of the relevant tax period.