The tax and compliance requirements of most UAE companies are expected to be completely changed with the adoption of corporation tax in the UAE. At MASAR, our specialized tax team will offer you the necessary support and resolve your corporate tax doubts. The UAE has decided to introduce the Corporate Tax (CT) on corporate profits in the country. It will be in effect for financial years starting from June 2023.

The UAE is new to corporate tax and as such companies will require the assistance of a consulting firm that has an experienced tax team. MASAR, an FTA approved tax agency in UAE, has a tax team of over 50 professional staff members, who have served over 800 tax service clients in the UAE. As registered with FTA, the company has global exposure and can help companies comply with the Corporate Tax in UAE once it goes into effect.

Corporate Tax in the UAE:

The UAE, which is home to Dubai’s premier business gateway, will continue to have one of the lowest corporate tax rates in the world. This proposal stems from the UAE’s intention to comply with international tax rules, mirroring similar efforts in other Gulf nations, reducing regulatory burdens for UAE companies, and protecting small businesses and emerging companies.

Timeline:

• On 31 January, 202 Ministry of Finance (MoF) announced UAE corporate tax and published Frequently asked questions (FAQ).
• On 28 April 2022, MoF launched public consultation document and invited comments by 20 May 2022.
• Publishing of Corporate tax decree-law and executive regulation (To be announced)

Why is the UAE Introducing Corporate tax?

• Increasing the country’s status as a major commercial and investment center.
• To accelerate the UAE’s development and transformation to meet its strategic goals.
• Addressing international tax transparency standards.
• Keeping harmful tax methods out of the system.
• To lessen its dependency on oil revenue.

Corporate Tax Scope:

The UAE has implemented a federal tax structure that applies to all companies and businesses in all emirates. Let’s see the scope of corporate taxes in detail below.

• Besides the extraction of natural resources, which is presently liable to Emirate-level taxes up to 55%, and the branches of foreign banks to whom 20% tax is applicable, the planned CIT regime is designed to apply to all commercial, industrial, and professional businesses in the UAE.
• Businesses that are incorporated in Free zones must meet all regulatory standards and not operate a business with the UAE mainland.
• Apart from businesses involved in the production of natural resources such as oil and gas and branches of foreign banks, all UAE businesses will be liable for corporate tax.
• All operations carried out by a legal body are considered “business activities” and are subject to the corporate tax framework.

Exempt Income

• Domestic dividends earned from UAE companies.
• Dividends paid by foreign companies. And capital gains from the sale of shares in both UAE and foreign companies will also be exempt from Corporate Tax. Provided certain conditions are met.
• Capital gains on the disposal of shares in a Free Zone Person will be exempt from UAE Corporate Tax. Where the Free Zone Person is a holding company and substantially. All its income is derived from shareholdings in subsidiary companies that meet the participation exemption.
• UAE companies having foreign subsidiaries can claim foreign branch profit exemption in two ways:
• Claim a foreign tax credit for taxes paid in the foreign branch country. Or
• Elect to claim an exemption for their foreign branch profits.
• Income earned by a non-resident from operating or leasing aircraft. Or ships (and associated equipment) used in international transportation provided certain conditions are met.

How does Corporate Tax affect foreign direct investment in the UAE?

Implementing a corporation tax is just one example of how the UAE is evolving and expanding rapidly. The government’s goal is to restructure the nation’s economy away from dependence on oil and gas. And is working to establish itself as a digital and technological powerhouse.

The UAE’s intention to change its corporate structure and adhere to international regulations can be seen in the first massive overhaul of labor law. The elimination of the need for a UAE citizen to own at least 51 percent of a UAE company. And the change of working week from Sunday to Thursday to Monday to Friday. The UAE will continue to attract highly skilled professionals as labor income will remain tax-free. And no income or personal property gains will be taxed. However, as a result of these developments, the cost of living and business has risen.