Corporate Tax from 2023 in the UAE
What is the Corporate Tax 2023?
From June 1, 2023, businesses will be required to pay corporate tax in UAE. The country’s tax rate will be 9% for individuals making over 375,000 AED and zero for those making less than that amount. The news that UAE will no longer be a tax-free country has shocked many businesses in the region. The country has been regarded as a leading international business hub for decades.
Many UAE companies are concerned about the higher federal corporate tax on business. Some say this will affect their operations, as they will pay a quarter more yearly tax. Companies are considering leaving; others say they may close down because of this higher rate. This is especially true for smaller companies.
The UAE government has not announced whether or not they will offer any compensation to these companies. However, they have said that they plan on keeping the business environment in the country friendly.
There is no word yet about if the tax for individuals will be raised in the same year that the corporate tax will change. Also, it is unclear if this change will include further taxes.
New Law and it’s Back story
The ministry of finance noted that the country’s corporate tax regime would be among the most competitive in the world. Individuals will also not be required to pay taxes on their income from investments, employment, real estate, and equity investments unrelated to a UAE business or trade.
Non-resident foreign investors will not be affected by the new corporate tax. It will only apply to the adjusted net profit of a business. As for what constitutes profit, the corporate tax will apply to the “adjusted accounting net profit.”
Most GCC countries have favorable tax policies, making the Gulf Cooperation Council a desirable location for international investment. Several changes are now under development to diversify the region’s revenue sources while reducing its dependency on them. The highlights of the new tax system in the UAE are listed below:
1. Tax Incentives
For businesses operating in free zones that benefit commercially from the mainland, a 9% tax will be levied. Businesses that adhere to all regulatory requirements and refrain from doing business with the mainland will continue to enjoy the benefits now available to free zone firms.
2. Loss Utilization Regulations
The business tax structure in the UAE will have lenient loss utilization requirements. Groups in the UAE will also be taxed as a single entity. Additionally, they can seek collective relief for reorganizations, intra-group transactions, and losses.
3. Commercial Activities
All businesses and commercial operations will be subject to the UAE corporate tax, except for resource extraction, which will continue to be taxed at the emirate level.
4. Evaluation Year
Multinationals would only need to submit one corporate tax return every fiscal year. They won’t be required to file provisional tax returns or advance tax payments. UAE firms will be subject to transfer pricing and documentation requirements based on the OECD Transfer Pricing Guidelines.
5. Corporate Tax in the UAE on Net Profits
The firm’s adjusted accounting net profit will be subject to corporate tax on operations in the UAE. For illustration, a company’s annual revenue is AED 1 million ( INR two crores). After all deductions (such as salary and rent), the company’s net profit is AED 3,000,000. ( INR 60 lakhs ). The company will not be subject to UAE taxes.
6. Private earnings
Earnings from employment, real estate, equity investments, and other personal income unrelated to UAE trade or enterprises will still be free from taxation. As a result, the UAE’s individual income tax rate remains at 0%. The UAE will also exclude foreign investors from corporation tax if they do not conduct business there.
7. Low Costs of Compliance
For multinationals that create and keep acceptable financial records, the corporation tax in the UAE will guarantee that compliance expenses are kept to a minimum. The UAE firms’ stated earnings will be subject to corporation tax in their financial statements. Additionally, the reports must be created using generally accepted accounting principles, with any necessary exceptions and revisions.
Additionally, there will be a significant reduction in the administrative burden on firms to file corporate tax filings since government services have become more computerized over the past few years.
Some Key points for Corporate Tax 2023
- No withholding tax will apply on domestic and cross-border payments.
- Free zone businesses that meet all requirements can continue to benefit from corporate tax incentives.
- Corporate tax will apply to the adjusted accounting net profit of the business.
- No corporate tax will apply on qualifying intragroup transactions and restructurings.
- Foreign tax will be allowed to be credited against UAE corporate tax payable.
- Generous loss transfer and utilization rules will be available to businesses.
- No corporate tax will apply on capital gains and dividends a UAE business receives from its qualifying shareholdings.
What Does It Mean For Your Business And You?
The Corporate Tax system, intended to reduce compliance obligations, will be advantageous to businesses producing and maintaining sufficient financial accounts. Companies will no longer be required to file provisional tax filings or make advance tax payments. Each year, businesses will submit a single Corporate Tax returns.