Overview UAE Corporate Tax 2023

UAE Corporate Tax 2023

The introduction of the UAE Corporate Tax law is poised to bring about substantial transformations in the landscape of UAE Tax and Transfer Pricing. The primary objective of the law is to focus taxation on business or business-related activity income, safeguarding personal income especially derived from employment, investments, and real estate from the purview of UAE Corporate Tax.

The significance of Transfer Pricing is expected to escalate, given that inter-company and intra-group transactions will now be scrutinized and necessitate adherence to arm's length principles. This heightened scrutiny emphasizes the need for businesses to ensure compliance with tax regulations, adding a considerable tax and compliance burden.

It is crucial for businesses to navigate these changes meticulously, as any lapses in compliance or adherence to the new regulations are anticipated to result in substantial penalties. As the UAE positions itself within the global tax framework, businesses must proactively adapt to these shifts, not only to meet regulatory requirements but also to thrive in an evolving economic landscape.

The UAE’s 2023 corporate tax will be a 9% tax on the profits (revenue minus expenses) of all businesses that generate over 375,000 AED (about USD $100,000). Businesses that generate less than this will have to continue to pay a 0% tax rate.

In addition to the corporate tax, the UAE has also announced that large multinational firms with profits of more than EUR 750 million will have to pay a 15% tax this is as per the Global Minimum Corporate Tax Rate agreement.

The new UAE corporate tax will come into effect in the tax year beginning June 1st, 2023, and so most companies will have to start setting aside money to pay their taxes from that date. Notably, businesses with a tax year starting in January will only be liable for taxes on revenues generated after January 1, 2024.

Features of the Corporate Tax Regime

Taxable Entities: Legal entities with distinctive legal structures, such as LLCs, PSCs, PJSCs, LLPs, and others, will be subject to taxation. Additionally, foreign legal entities earning income in the UAE and qualifying as tax residents will face charges. While free zones enjoy a 0% corporate tax, compliance with regulatory requirements is essential, even for free zone companies engaged in mainland trade. Corporate taxing policies may apply to both non-residents and residents of the UAE.

Tax Rates: For businesses earning income below AED 375,000, a 0% tax rate applies, while those exceeding this threshold will incur a 9% tax. Larger multinational companies with different business conditions will face varied tax rates.

Exemptions

Corporate tax law incorporates a participation exemption from corporate tax for entities receiving dividends or selling shares of a subsidiary. Corporation taxes do not apply to charities, public benefit organizations, investment funds, businesses engaged in oil and resource extraction, and companies that are entirely government-owned.

Calculating Taxable Income

The company's net profit or loss in financial statements determines the applicable tax percentage and income. In the event of a company loss, businesses can offset the value against taxable income in future financial years, up to 75%.

Groups of companies

Groups of companies may form a tax group, treated as a single taxable entity. To qualify, a company or subsidiary must not be an exempted party or be registered in a free zone.

Tax Credits

To prevent double taxation, the regime permits a credit against foreign tax paid in a foreign jurisdiction concerning foreign tax income not exempted.

Compulsory Audit Requirements

As per Article 54(2) of the corporate tax law, the Ministry of Finance mandates the preparation of audited financial statements for individuals meeting the following criteria:

1. Taxable entities with revenues exceeding AED 50 million.

2. Qualified individuals within free zones.

In conclusion, the UAE's embrace of a global minimum tax for multinational corporations, supported by the G20, underscores its dedication to international tax reform and willingness to engage in collaborative efforts with other nations. This commitment aims to establish a fair and equitable environment for businesses worldwide. The introduction of corporate tax in the UAE represents a noteworthy milestone in the nation's economic trajectory. The successful implementation of this tax framework is poised to yield positive implications, fostering sustained economic growth and prosperity for the country in the years to come.