Abu Dhabi, UAE — The UAE’s Federal Tax Authority (FTA) has announced the unprecedented implementation of a 9% corporation tax, set to take effect in 14 days. Under the new law, the UAE will impose a headline 9 percent Corporate Tax rate for taxable income above AED375,000 (US$102,110).
The FTA’s decision has also refined the definition of an individual as a business entity. Individuals can now be classified as a business if their income stream surpasses a specified amount, or if their held assets exceed a certain value. This move serves as a warning against the practice of transferring company assets to personal holdings.
UAE employees drawing income from a singular source or salary payment need not be concerned, as salaries will continue to remain exempt from income tax. However, business owners have been advised to promptly register for corporation tax and submit their accounts to avoid substantial fines.
The UAE’s free zones, typically tax-exempt, are also subject to the newly imposed 9% corporation tax. Free zone entities conducting transactions with onshore entities will be subject to this tax. However, free zone entities operating purely overseas transactions are still exempt, though they are obliged to submit their accounts to the FTA, explaining why they are not taxable.
The Ministry of Finance recently published an Explanatory Guide for Federal Decree-Law No 47 of 2022, detailing the new Corporate Tax Law’s provisions. The guide also elucidates the intended implications of each provision, ensuring transparency for all taxable entities.
Younis Haji Al Khouri, Undersecretary of the Ministry of Finance, explained that the Explanatory Guide would help taxable persons to comprehend the law’s provisions and its raison d’être. He emphasized the Ministry’s commitment to providing necessary support and information to taxable entities before the law comes into effect.
The Corporate Tax Law boasts several features that are set to spur business activity and ease the compliance burden for taxable persons. A significant feature is the application of a 0% tax rate for taxable income up to AED375,000 ($102,110). Additionally, qualifying Free Zone persons will also enjoy a 0% Corporate Tax rate.
Further relief measures include administrative and financial support for small businesses and startups. Companies with turnover up to AED3,000,000 ($816,882) will be exempt from tax and will benefit from simplified filing requirements.