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.