The UAE Ministry of Finance has recently declared the implementation of a 9% federal corporate tax on business profits, effective from the start of the financial year on June 1st, 2023. This tax will apply to companies earning above AED 375,000.
It is worth noting that the corporate tax rate in the UAE is highly competitive and is currently the lowest in the GCC region. With this new development, Bahrain is now the only country in the GCC without a corporate tax regime.
Furthermore, the UAE government has emphasized its commitment to adopting the best global practices in corporate taxation. With fewer compliance requirements for firms, this tax is anticipated to be implemented with ease, guaranteeing simple tax administration.
The profits of UAE businesses, as stated in their financial statements prepared according to internationally accepted accounting standards, will be subject to corporate tax in the UAE. There will be minimal exceptions and adjustments to this rule. Consequently, it is now mandatory for financial statements to be audited promptly and without any exceptions.
According to the announcement, the only business activity exempt from corporate taxation will be the extraction of natural resources, which will still be subject to emirate-level corporate tax. This means that different corporate tax rates may apply in Dubai, Abu Dhabi, or other emirates. Additionally, entities operating in free zones may also be eligible for exemptions, provided they meet certain conditions.
The introduction of these conditions is expected to address concerns regarding the global minimum 15% income tax. Furthermore, no withholding taxes will be imposed, and the UAE’s Foreign Tax Credit will ensure that no additional taxes need to be paid, up to the extent of the credit allowed.
The UAE has implemented a tax system that exempts corporate tax on capital gains and dividends, further enhancing the effectiveness of the holding company structure. Under this new tax regime, group tax registrations or taxability at a group level are permitted. As a result, inter-company losses can be considered when calculating taxable profits. In addition, UAE businesses will need to adhere to transfer pricing and documentation requirements following the OECD Transfer Pricing Guidelines.
The implementation of corporate tax in the UAE is a significant development in the country’s legal and compliance landscape. The introduction of the UAE Corporate Tax (Dubai/UAE CT) and its accompanying corporate tax compliance framework will be extensively discussed. This move will be closely monitored by the broader regional and global economies, as they take into account the corporate tax rate in the UAE when making their calculations. It is important to emphasize that even though the UAE corporate tax rate remains one of the lowest globally, it represents a substantial departure from the previous tax regime. Its implementation will have far-reaching implications for various aspects of business operations, including pricing, marketing, accounting procedures, documentation, and IT infrastructure.
Companies engaged in activities in the UAE, both offshore and onshore, must carefully consider the impact of the company tax on their transactions, including those involving cross-border activities and entity structure. Businesses must ensure compliance with the new corporate tax requirements and incorporate effective corporate tax planning strategies from the early stages of their operations in the UAE.
Transition effortlessly to the new era of corporate tax in the UAE with ICA’s comprehensive offerings.
A majority of leading businesses in the nation have already initiated their readiness assessments for UAE Corporate Tax (CT).
Taking early steps towards corporate tax compliance is crucial to avoid escalated implementation expenses and alleviate the burden on internal teams, who would otherwise be under immense pressure to complete these preparations within a limited timeframe.
At Intellect Chartered Accountants, our proficiency and extensive experience will guide you through this unfamiliar terrain, guaranteeing that your organization smoothly and seamlessly adapts to the corporate tax era. The team possesses extensive knowledge of overseeing compliance, which includes the calculation of corporate taxes, handling deposits, preparing filings and reports, managing documentation, and obtaining certification. Our teams remain informed about the latest regulations, policies, alterations in tax compliance and obligations, as well as accounting requirements. Furthermore, they assist clients in ensuring timely and accurate adherence to these updates.
