The Ministry of Industry and Advanced Technology and the Ministry of Finance has announced it has started implementing the In-Country Value Program on the procurement policies of all 45 federal government entities, including ministries, federal authorities and institutions. The aim of the program, which was launched as part of the "Projects of the 50", is to stimulate the industrial sector in the UAE, enhance its competitiveness and support the country’s future economic diversification plans.
CORPORATE TAX OVERVIEW, SCOPE AND RATE
❖ What is Corporate Tax ?
Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses. Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.
❖ When will the Corporate Tax become effective?
The UAE Corporate Tax will become effective for financial years starting on or after 1 June 2023. Examples:
• A business that has a financial year starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE CT from 1 July 2023 (beginning of the first financial year).
• A business that has a financial year starting on 1 January 2023 will become subject to UAE CT from 1 January 2024.
❖ What will be the role of Federal Tax Authority?
The FTA will be responsible for the administration, collection and enforcement of UAE CT.
❖ Who will be subject to UAE CT?
The corporate tax will apply to all UAE businesses and commercial activities, except for the extraction of natural resources, which will remain subject to emirate-level corporate taxation.
As a result:
1. All activities undertaken by a legal entity will be deemed "business activities" and hence be within the scope of the corporate tax.
2. Individuals having (or being required to obtain) a business license or permit to carry out the relevant commercial, industrial and/or professional activity in the UAE will also be subject to the corporate tax. This includes freelance workers who carry out their activities with a business license or a permit.
3. Foreign entities and individuals conducting a trade or business in the UAE "in an ongoing or regular manner" will be subject to the corporate tax.
4. Businesses established in free zones will be subject to the corporate tax, but the new tax regime will continue to honour the incentives currently being offered to those businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE.
Specific sectors subject to the UAE's corporate tax are: businesses engaged in banking operations, real estate management, construction, development, agency, and brokerage activities.
All legal entities and individuals in the scope of the corporate tax will be required to register for Corporate Tax purposes and file a yearly tax return.
❖ What will be the UAE Corporate Tax rates?
The Corporate Tax rates are:
➢ 0% for taxable income up to AED 375,000.
➢ 9% for taxable income above AED 375,000; and
➢ A different tax rate for large multinationals (described below) that meet specific criteria set with reference to “Pillar Two” of the OECD Base Erosion and Profit Shifting Project.
Large multinationals:
A multinational corporation is a corporation that operates in its home country, as well as in other countries through a foreign subsidiary, branch or other form of presence / registration. Merely earning income from outside its home country without a foreign presence or registration would not make a business a multinational corporation.
In the context of the global minimum effective tax rate as proposed under 'Pillar Two' of the OECD Base Erosion and Profit Shifting project,” large” refers to a multinational corporation that has consolidated global revenues in excess of EUR 750m (c. AED 3.15 bn).
INCOME EXEMPT FROM CORPORATE TAX
➢ Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from UAE CT.
➢ A qualifying shareholding refers to an ownership interest in a UAE or foreign company that meets certain conditions to be specified in the UAE CT law.
➢ Qualifying intra-group transactions and reorganizations will not be subject to UAE CT provided the necessary conditions are met.
FOREIGN PERSONS AND FREE ZONES
➢ Foreign entities and individuals will be subject to UAE CT only if they conduct a trade or business in the UAE in an ongoing or regular manner.
➢ UAE CT will generally not be levied on a foreign investor’s income from dividends, capital gains, interest, royalties and other investment returns
➢ Free zone businesses will be subject to UAE CT, but the UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE.
➢ A business established in a free zone will be required to register and file a CT return.
INCOME AND LOSSES
❖ How to determine the business profit / income that will be subject to UAE CT?
The taxable income will be the accounting net profit of a business, after making adjustments for certain items to be specified under the UAE CT law later on.
The accounting net profit of a business is the amount reported in the financial statements prepared in accordance with internationally acceptable accounting standards.
Losses incurred (as from the corporate tax effective date) can be used to offset taxable income in subsequent financial periods. As a reminder, a loss for corporate tax purposes (called a "tax loss") would arise when the total deductions the businesses can claim are greater than the total income for the relevant financial period.
❖ Will the UAE CT regime allow prior year losses to reduce future taxable income?
The UAE CT regime will allow a business to use losses incurred (as from the UAE CT effective date) to offset taxable income in subsequent financial periods.
A loss for CT purposes (tax loss) would arise when the total deductions the businesses can claim are greater than the total income for the relevant financial period
Excess tax losses may be carried forward and used against taxable income in future years, provided certain conditions are met
Tax losses from one group company may be used to offset taxable income of another group company, provided certain conditions are met Further information on the group loss utilization rules will be provided in due course.
ADMINISTRATION
➢ CT return will need to be filed only once per financial period. No provisional
or advance CT filings will be required.
➢ CT return will be filed electronically.
➢ Similar to other taxes in the UAE (e.g. VAT), businesses will be subject to
penalties for non-compliance with the CT regime. Further information on the
UAE CT compliance obligations and applicable penalties will be released in
due course.
News resources:
https://www.mof.gov.ae/en/resourcesAndBudget/Pages/FAQ.aspx
https://www.mof.gov.ae/en/media/materials/News/Pages/31012022.aspx
Help Your Business Prepare for the UAE’s New Corporate Tax
The Ministry of Finance (‘MoF’) has issued Ministerial Decision No. 73 of 2023 on Small Business Relief following Article 21 of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (‘Corporate Tax Law’).
