The United Arab Emirates (UAE), is a federation of seven Emirates and is situated in the southeast of the Arabian Peninsula. At its borders it has the Persian Gulf to the north, Oman to the east, and Saudi Arabia to the south west. The official language of UAE is Arabic but English is widely spoken and used in business. The currency of UAE is the United Arab Emirates dirham (AED).
In 2023, the UAE is set to implement a new corporate tax system. This system which will commence on 1st June 2023 will mean that companies with profits exceeding AED 375.000 will be subject to a 9percent corporate tax rate.
1. Introduction
Ministry of Finance (MoF) published the federal decree law no. 47 of 2022 on 9th Dec 2022 for UAE Corporate Tax (CT). CT will apply uniformly across all the emirates.
2. Effective Date
CT will become effective from financial years starting on or after 1 st June 2023. e.g. A taxable person that follows the calendar year and has a financial year of 1 Jan to 31 Dec will be subject to CT from 1 Jan 2024.
3. Tax Rates Corporate
Tax shall be levied on the Taxable Income of a person (other than Qualifying Free Zone) above AED 375,000 at 9%.
| 0% |
Up to AED 375,000 |
| 9% |
Above AED 375,000 |
A Qualifying Free Zone Person (QFZP) will be taxed at the following rates on their income:-
| 0% |
On Qualifying Income |
| 9% |
on Taxable income that is not Qualifying income (No Threshold Benefit) |
Note: Until Pillar Two rules are adopted by UAE, Large MNCs meeting consolidated revenue threshold (€ 750 million) would also be taxed at a regular rate.
4. Qualifying Free Zone Person
A QFZP is a free zone person (FZP) which:-
- Maintains adequate substance in UAE;
- Derives Qualifying Income;
- Have not made a choice to be subject to Corporate Tax at the standard rates and;
- Complies with the transfer pricing requirements.
If a QFZP fails to meet any of the above conditions then they will subject to the 9% CT.
Note: A detailed guidance on qualifying income & QFZP is expected in cabinet decision.
5. Taxable Person
Corporate tax is applicable on income of both resident & non-resident person on the basis of source of income.
Resident
- A legal person incorporated in UAE or;
- A Foreign legal person effectively managed & controlled in UAE or;
- A natural person conducting a business activity in UAE.
Non Resident
- A person who is not considered resident and;
- Has a permanent establishment (PE) in UAE or;
- Derives UAE sourced income or;
- Has a “nexus” in UAE.
Note: Nexus is not defined by decree law
In conclusion, the UAE is an attractive option for doing businesses and individuals looking to grow their wealth. The low income tax rate and lack of taxes on dividends, gifts, and capital gains make it a great choice.
UAE has also implemented a VAT system with 5% vat rate earlier.
