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MOF Levy Federal Corporate Tax in UAE from June 2023

MOF Levy Federal Corporate Tax in UAE from June 2023

On 31st January 2022, the Ministry of Finance announced a federal corporate tax on business net profits that will take effect in June 2023. The taxes on corporate profits will be applicable to the financial year beginning on or after June 1, 2023. The regulatory authorities are going to implement the corporate tax in UAE on all registered companies. It is levied on the business profit after deducting all expenses as reported in their financial statement. Let’s understand the essential parameter of this new tax regime:

UAE’s Government Intention

The UAE corporate tax is introduced to attract investors from all over the world and increase the reliability of business owners. The main objective of the UAE government is to: 

  • Minimize the tax burden for small businesses.
  • Help taxpayers, locally & globally.
  • Empower UAE to become a world-leading business hub.
  • The tax-free regime for individuals’ income.
  • Compliance with international tax standards.
  • Escalating UAE progress & development programs. 

H.E. Younis Haji Al Khoori, Undersecretary at the MOF stated that:

“The introduction of a corporate tax regime will help the UAE achieve its strategic ambitions and incentivize businesses to establish and expand their activities in the UAE” 

Businesses Subject to UAE Corporate Tax Regime

The Emirate’s government set out a threshold for corporate tax for businesses operating in the United Arab Emirates. All businesses and commercial activities in the UAE will be subject to the corporate tax, except for natural resource extraction, which will continue to be taxed at the Emirate level. The UAE corporate tax regime is going to apply to free zone companies that comply with all the federal tax requirements and also do not conduct business in the UAE mainland. The authorities clearly defined that 

  • Businesses are subject to a 9% tax rate whose corporate earnings exceed AED 375,000 / dirhams ($102,000). 
  • The statutory tax rate is 0%, which means no corporate tax on registered entities whose taxable income is up to AED 375,000. 

Are Individuals Exempt from Corporate Tax in UAE?

The Ministry of Finance (MOF) confirmed that UAE corporate tax will not levy on the individual’s personal income from employment, real estate, and other investments. Any other income source that is not earned from business or commercial activities licensed in the UAE is exempted from this new tax regime. With this latest UAE corporate tax rate, startups will be relieved of complex tax treatment and will benefit from a competitive tax system.

Important Aspects of Federal Corporate Tax

The upcoming federal corporate tax in UAE brings about some other provisions for entities, such as:  

  • Foreign Investors who don’t operate a business in the UAE, are exempt from corporate tax.
  • The UAE corporate tax is levied on the annual business profit with adjusted accounting profits
  • No corporate tax is imposed on the capital gain & the company’s dividends received by the shareholders.
  • The withholding tax is not applied to cross-border and domestic payments. 
  • Foreign taxes will allow being credited against UAE corporate tax payable.
  • The corporate tax regime will allow generous loss transfer and utilization rules for the companies. 
  • Businesses will be required to submit corporate tax filing in UAE once in each financial year & will not need to prepare provisional tax returns.

The regulatory authorities provide ample amount of time for businesses to be compliant with this corporate tax in UAE. Our team of certified accountants and tax consultants in Dubai keeps up to date with the latest updates from the Ministry of Finance (MOF). We offer professional advisory services to individuals and corporations to implement UAE’s latest taxation system. Make sure you are prepared before the new regime comes into effect! 

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