The Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses (hereinafter referred to as the “Corporate Tax Law”) was issued by the United Arab Emirates (“UAE”), on 09 December 2022.
The Corporate Tax Law provides the legislative basis for the introduction and implementation of a Federal Corporate Tax (“Corporate Income Tax”) in the UAE and is effective for financial years starting on or after 1 June 2023.
Corporate Tax applies to the following “Taxable Persons”:
- UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE;
- Natural persons (individuals) who conduct a Business or Business Activity in the UAE; and
- Non-resident juridical persons (foreign legal entities) that have a Permanent Establishment in the UAE.
Juridical persons established in a UAE Free Zone are also within the scope of Corporate Income Tax as “Taxable Persons” and will need to comply with the requirements set out in the Corporate Tax Law. However, a Free Zone Person that meets the conditions to be considered a Qualifying Free Zone Person can benefit from a Corporate Tax rate of 0% on their Qualifying Income.
In order to be considered a Qualifying Free Zone Person, the Free Zone Person must:
- maintain adequate substance in the UAE;
- derive ‘Qualifying Income’;
- not have made an election to be subject to Corporate Tax at the standard rates;
- comply with the transfer pricing requirements under the Corporate Tax Law; and
- meets any other conditions as may be prescribed by the Ministry of Finance.
Ministry of Finance has not given yet any list as to what are all the ‘Qualifying Income’ and the underlying conditions. It will be defined in a Cabinet Decision.
Non-resident persons that do not have a Permanent Establishment in the UAE or that earn UAE sourced income that is not related to their Permanent Establishment may be subject to Withholding Tax (at the rate of 0%). Withholding Tax is a form of Corporate Tax collected at source by the payer on behalf of the recipient of the income. Withholding taxes exist in many tax systems and typically apply to the cross-border payment of dividends, interest, royalties and other types of income.
Calculation and payment of Corporate Tax is done through the filing of a Corporate Tax Return with the Federal Tax Authority by the Taxable Person on annual basis, starting from calculating Taxable Income (accounting income, i.e. net profit or loss before tax) as per financial statements. The Taxable Person will then need to make certain adjustments to determine their Taxable Income for the relevant Tax Period.
Taxable income below AED 375,000 is subject to a 0% corporate tax rate. A 9% corporate tax rate applies to any amount above this threshold as follows:
|Resident Taxable Persons|
|Taxable Income not exceeding AED 375,000 (this amount is to be confirmed in a Cabinet Decision)||0%|
|Taxable Income exceeding AED 375,000||9%|
Qualifying Free Zone Persons
|Taxable Income that does not meet the Qualifying Income definition
All Taxable Persons (including Free Zone Persons) will be required to register for Corporate Tax and obtain a Corporate Tax Registration Number. Taxable Persons are required to file a Corporate Tax return for each Tax Period within 9 month from the end of their financial year.
For business with a financial year ending on 31 December, the First Tax Period is 1 January 2024 - 31 December 2024 and the First Filing and Payment Due Date 30 September 2025.
Further updates are expected to be provided in the following months as the Cabinet Decisions are issued and clarifications provided by the Authorities on how the corporate tax laws shall be applied in a practical manner.