The United Arab Emirates (UAE) will introduce a federal Corporate Tax (CT) on business profits that will be effective for financial years starting on or after 1 June 2023. The UAE CT regime has been designed to incorporate best practices globally and minimize the compliance burden for UAE businesses. The introduction of a federal CT regime is intended to help the UAE achieve its strategic ambitions and incentivize businesses to establish and expand their activities in the UAE. The certainty of a competitive regime, together with the UAE’s extensive network of double tax treaties, will cement the UAE’s position as a world leading destination for investment.
Recognizing the importance of consultation with the business community and other interested stakeholders, the Ministry of Finance launched public consultation document ahead of the official release of the UAE CT legislation. (Important features discussed here is based on public consultation document).
Key Features of The Corporate Tax From 2023 In the U.A.E.
Here are some essential features of the corporate Tax 2023 that you should know about.
- This U.A.E. corporate tax will apply to all businesses.
- UAE CT will apply to UAE companies and other legal persons incorporated in the UAE, as well as to foreign legal entities that have a permanent establishment in the UAE or that earn UAE sourced income.
- Business subject to Corporate Tax will need to register with the FTA and obtain a Tax Registration Number within a prescribed period.
- There will be no implementation on the income from employment, real estate, share investment, or other personal income unrelated to the trade business of Individuals.
Rate of Taxes:
- Corporate Tax will be charged on the annual taxable income of a business as follows:
- 0%, for taxable income not exceeding AED 375,000; and
- 9%, for taxable income exceeding AED 375,000; or.
- There will be no tax implementation on foreign investors who have no business to carry on in U.A.E.
- Free zone businesses will also not get charged the corporate Tax.
- Domestic and cross-border payments will not be charged with Tax.
- There will be no tax for the capital gains and dividends received by the U.A.E. businesses from various shareholdings.
- There will be no implementation of Corporate Tax for intragroup transactions and restructurings.
- A business will be able to offset a loss incurred in one period against the taxable income of future periods, up to a maximum of 75% of the taxable income in each of those future periods.
Impact of the Corporate Tax From 2023 In the U.A.E.
Only a handful of countries apply less Corporate Tax and are tax havens. Some countries take humungous amounts of taxes from businesses, and you would be surprised to know that the amounts are more than what they are left with after paying the Tax. For instance, some countries charge 60% personal income tax and 37.5 % of corporate Tax, and they are just the two. Other taxes like sales tax, income tax, property tax, inheritance tax, real estate tax, excise tax, and whatnot. The only best part of the Corporate Tax in the U.A.E. is that the government is not leeching the money out from the citizens, which is just 9%.
2022 was a surprising year for U.A.E. some of them were pleasant, and some were not so pleasant. Let’s talk about the one with which everyone is concerned these days. A tax deduction is the only possible effective way of tax planning. You have to find a good corporate tax consultant in Dubai, and then you are good to go. They will help you prepare for the 2023 tax deduction and share some valuable strategies and ways your business will have a minor effect.
The Possible Downsides of the Corporate Tax From 2023 In the U.A.E.
As mentioned, taxes can’t be appreciable, at least not for the taxpayer. They certainly feel like death. No matter if the tax percentage is smaller compared to other countries, there is no possible way of appreciating it. The Tax will be applicable to all corporate entities, and it will have an impact on the yearly incomes of all the businesses. This will result in the increased prices of various services and products as well.
Up-Sides Of The Corporate Tax From 2023 In The U.A.E.
This Tax is not applicable for small businesses that have low income per year. Other than that, the free-zone businesses will also not have to pay this Tax. The government is considerate, and they have excluded startups and strugglers so that they could grow faster. Once they have outstretched a certain stage or point, they will be charged with corporate Tax.
One of the most outstanding plus points of this U.A.E. corporate Tax is that it does not apply to all the free zone businesses. They neither have to pay the corporate Tax nor the income tax. There is a 50-year moratorium on corporate Tax in the free zone. This Tax is renewable after 50 years. The amount is not huge, and it is beneficial for them. From June 1st 2023, the corporate Tax will be applicable on all corporate businesses except free—zone businesses.
Computation Of the Corporate Tax From 2023 In the U.A.E.
The U.A.E. corporate tax is based on the accounting system of net income. One has to consider all the revenue streams to arrive at net income, which is also called net profit or net earnings. In such incomes, it is also required to compute expenses incurred to earn such income. These include;
- Operating expenses
- Interest on loans
- Amortization expenses, and others as well
In order to corporate the liability of Tax, you will have to calculate the product of your net or tax income by 9%. And if you want to find out the taxable income from the earnings of your business, then you will have to deduct the sum of all of your expenses from the sum of the total earnings you make. Be informed that the accounting net income (subject to certain adjustments) shall be in line with the accounting principles that are globally accepted.
Wrapping It Up!
Are you ready to face the Federal corporate Tax on business? This Corporate Tax will be applicable from June 1st 2023. This Tax has its own pros and cons.