Introduction about Corporate tax
What is Corporate Tax (CT)?
Corporate tax is a direct tax imposed on the net profit or income earned by companies and other business entities.
Purpose of Corporate Tax
The introduction of corporate tax in the UAE is designed to:
- Strengthen the UAE's Role as a Premier Global Business Hub: By implementing corporate tax, the UAE aims to reinforce its position as a leading destination for business and investment.
- Drive Development and Transformation: The revenue from corporate tax will support the UAE's strategic goals and facilitate further economic development and transformation.
- Align with International Standards: The UAE is committed to adhering to global standards for tax transparency and preventing practices that could undermine the integrity of the financial system.
Scope - CT will apply to:
All Companies and Individuals: Operating under a commercial license in the United Arab Emirates.
Free Zone Businesses: The UAE Corporate Tax regime will comply with all regulatory requirements and continue to honor existing tax incentives for free zone businesses not conducting business in the UAE mainland.
Foreign Entities and Individuals: Only those who continuously or regularly trade or conduct business in the UAE.
Banking Sector: Businesses engaged in banking activities.
Real Estate Sector: Businesses involved in the management, construction, development, agency, and brokerage of real estate.
Exemptions from CT - Below are the rules for corporate tax exemption.
Extraction of Natural Resources: Companies engaged in the extraction of natural resources are subject to the existing Emirati-level corporate tax and are exempt from the new Corporate Tax.
Dividends and Capital Gains: Dividends and capital gains earned by UAE companies from qualifying shareholdings are exempt from Corporate Tax.
Intragroup Transactions and Restructurings: Eligible intragroup transactions and organizational restructurings are exempt from Corporate Tax, provided they meet the necessary conditions.
Additionally, CT will not apply to:
- Personal Income: Wages and other employment income from both public and private sectors.
- Interest and Savings Income: Interest and other earnings from bank deposits or savings plans.
- Foreign Investment Income: Earnings from dividends, capital gains, interest, royalties, and other investments by foreign investors.
- Personal Real Estate Investment: Income from real estate investments made by individuals in their personal capacity.
- Securities Income: Dividends, capital gains, and other income earned from owning stocks or other securities in an individual capacity.
CT Rate - As per Ministry of Finance, CT rates are:
- 0% Tax Rate: Applies to taxable income up to AED 375,000.
- 9% Tax Rate: Applies to taxable income exceeding AED 375,000.
- Additional Tax Rates: Specific rates (yet to be specified) apply to large multinational corporations meeting criteria set under Pillar 2 of the OECD Base Erosion and Profit Shifting (BEPS) Project.