Abu Dhabi, UAE—The UAE has issued a decree on the Taxation of Corporations and Businesses, the Corporate Tax Law, under which businesses will become subject to UAE corporate tax from the beginning of their first financial year that starts on or after 1 June 2023.
The UAE’s Corporate Tax regime will levy a standard rate of nine percent for taxable profits exceeding AED375,000 ($102,099). Profits up to and including that threshold will not be taxed “to support small businesses and start-ups”.
The Ministry said the zero percent threshold for taxable profits has been included in recognition of the vital role of start-ups and small businesses in the UAE’s economy, and the nine percent standard rate ensures that the Corporate Tax regime is amongst the most competitive in the world and will strengthen the UAE’s position as a global business and financial center.
The Ministry of Finance said the law “is an important milestone in building an integrated tax regime that supports the strategic objectives of the UAE and enhances its global economic competitiveness, as well as provides the national economy with sufficient flexibility to deal with and support international financial systems within the framework of the UAE’s established partnerships”.
Natural resource extraction activities in the country are exempt from Corporate Tax. However, they remain subject to existing local emirate-level taxation. Other exemptions are available to organizations such as government entities, pension funds, investment funds and public benefit organizations due to their vital importance and contribution to the social fabric and economy of the UAE.
Free zone entities will be eligible to benefit from the zero percent Corporate Tax rate on qualifying income. The tax regime also provides generous relief for intra-group transfers and restructurings. It allows group companies to use each other’s available tax losses.
Corporate Tax will not be applied to salaries or other personal income from employment, whether it is earned from work in the government, semi-governmental or private sector. Interest and other personal income earned from bank deposits or savings programs are also not subject to Corporate Tax, as well as investment in real estate by individuals in their personal capacity.
The Ministry will remain the ‘competent authority’ for bilateral and multilateral agreements and the international exchange of information for tax purposes. The Federal Tax Authority will be responsible for the administration, collection, and enforcement of the Corporate Tax Law.