The Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses (hereinafter referred to as the “Corporate Tax Law”) was issued by the United Arab Emirates (“UAE”), on 09 December 2022. The Law comes into effect 15 days from its publication in the official Gazette and applies to Tax Periods commencing on or after 1 June 2023 (Article 69).
The Corporate Tax Law provides the legislative basis for the introduction and implementation of a Federal Corporate Tax (“Corporate Tax”) in the UAE.
The UAE’s Corporate Tax regime will levy a standard rate of 9 percent for taxable annual profits exceeding AED 375,000. Profits lower than that amount will be taxed at a 0 percent rate to support small businesses and start-ups. A Taxable Person must file a Tax Return with the FTA no later than (9) nine months from the end of the relevant Tax Period, or by such other date as directed by the FTA.
- UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE;
- Natural persons (individuals) who conduct a Business or Business Activity in the UAE as specified in a Cabinet Decision to be issued in due course; and
- Non-resident juridical persons (foreign legal entities) that have a Permanent Establishment in the UAE (which is explained under [Section 8]).
Juridical persons established in a UAE Free Zone are also within the scope of Corporate Tax as “Taxable Persons” and will need to comply with the requirements set out in the Corporate Tax Law. However, a Free Zone Person that meets the conditions to be considered a Qualifying Free Zone Person can benefit from a Corporate Tax rate of 0% on their Qualifying Income (the conditions are included in [Section 14]).
Non-resident persons that do not have a Permanent Establishment in the UAE or that earn UAE sourced income that is not related to their Permanent Establishment may be subject to Withholding Tax (at the rate of 0%). Withholding tax is a form of Corporate Tax collected at source by the payer on behalf of the recipient of the income. Withholding taxes exist in many tax systems and typically apply to the cross-border payment of dividends, interest, royalties and other types of income.
How to prepare for Corporate Tax Law:
- Read the Corporate Tax Law and the supporting information available on the websites of the UAE Ministry of Finance and the UAE Federal Tax Authority.
- Use the available information to determine whether your business will be subject to Corporate Tax and if so, from what date.
- Understand the requirements for your business under the Corporate Tax Law, including, for example:
- Whether and by when your business needs to register for Corporate Tax;
- What is the accounting / Tax Period for your business;
- By when your business would need to file a Corporate Tax return;
- What elections or applications your business may or should make for Corporate Tax purposes;
- What financial information and records your business will need to keep for Corporate Tax purposes;
- Regularly check the websites of the Ministry of Finance and the Federal Tax Authority for further information and guidance on the Corporate Tax regime.