New Corporate Tax Regulations in the UAE

The UAE Ministry of Finance announced the introduction of a federal Corporate Tax (CT) regime, which will be effective for financial years starting on or after June 1, 2023. This represents a significant change for businesses operating in the UAE, which has traditionally been known for its tax-friendly environment.

Key Features of the New Corporate Tax Regime

Tax Rates

The UAE Corporate Tax will be applied at the following rates:

0% for taxable income up to AED 375,000
9% for taxable income above AED 375,000
Different rates for large multinationals meeting specific criteria under the OECD's Base Erosion and Profit Shifting (BEPS) initiative

Scope of Application

The Corporate Tax will apply to:

All businesses and commercial activities operating in the UAE
Free Zone businesses (subject to certain conditions)
Foreign entities with a permanent establishment in the UAE
Individuals conducting business activities that require a commercial license

Exemptions

Certain entities and income sources will be exempt from Corporate Tax:

Natural resources extraction businesses (subject to existing emirate-level taxation)
Dividends and capital gains from qualifying shareholdings
Qualifying intra-group transactions and reorganizations
Public benefit organizations, subject to certain conditions

Preparing Your Business for UAE Corporate Tax

1. Assess Your Corporate Structure

Review your current corporate structure to determine:

Which entities will be subject to Corporate Tax
Whether your current structure is tax-efficient
If restructuring might be beneficial before implementation

2. Review Your Accounting Systems

Ensure your accounting systems can:

Track taxable income accurately
Distinguish between exempt and non-exempt income
Support the preparation of Corporate Tax returns

3. Understand Transfer Pricing Requirements

The new regime will include transfer pricing rules aligned with OECD guidelines:

Document all related-party transactions
Ensure transactions are conducted at arm's length
Prepare transfer pricing documentation

4. Plan for Tax Compliance

Develop a compliance strategy that includes:

Registration for Corporate Tax
Calculation of quarterly tax provisions
Preparation and filing of annual tax returns
Management of tax payments

Impact on Different Business Types

Small and Medium Enterprises (SMEs)

Benefit from the 0% threshold for taxable income up to AED 375,000
Need to implement basic tax compliance measures
May need to separate personal and business finances more clearly

Free Zone Companies

May qualify for preferential tax treatment if they comply with regulatory requirements
Need to assess whether they meet the conditions for tax incentives
Should review their substance in the UAE

International Groups

Need to consider the UAE Corporate Tax in their global tax planning
Must comply with transfer pricing and substance requirements
Should assess the impact of global minimum tax initiatives

Conclusion

The introduction of Corporate Tax in the UAE marks a significant shift in the country's fiscal policy. While the rates remain competitive globally, businesses need to prepare for this change by reviewing their structures, implementing proper accounting systems, and developing tax compliance strategies.

At Selan Global Consultancy, we can help you navigate these changes and optimize your tax position under the new regime. Contact us for a personalized consultation on how the UAE Corporate Tax will affect your business.