The United Arab Emirates (UAE) has long been known as a zero-tax jurisdiction for corporations. This is set to change following the announcement by the Ministry of Finance (MOF) on January 31, 2022 that the UAE will implement a federal corporate income tax (CIT) effective for financial years beginning on or after June 1, 2023.
In an unprecedented move, the UAE Ministry of Finance announced on 31 January 2022 that the country is set to lift Tax-Free Status and implement a 9 percent Corporate Tax on Business Profits for financial years beginning on or after 01 June 2023 for Corporations earning more than AED375,000. Multinationals operating in the UAE and earning more than €750 million in global revenues will be subject to a 15% Corporation Income Tax, which is the Global Minimum Corporate Tax (GMCT).
The new legislation has not yet been published, but we understand from multiple sources that the goal of the tax move is to bring the UAE in line with the tax legislation of many countries around the world.
The newly implemented Corporations Income Tax will be applicable across all Emirates and will apply to all businesses and commercial activities, with the exception of natural resource extraction, which will continue to be subject to the Emirate level tax system.
Businesses operating in free zones will be subject to the Corporate entities Income Tax. Nevertheless, if they comply with all regulatory standards and do not conduct business in the mainland UAE, they will continue to benefit from Corporation Tax holidays or 0% taxation. Individuals are still exempt from income tax, capital gains tax on real estate and other investments, and other earnings that do not come from a business, according to the new proposed tax legislation.
Despite trying to impose a 9% Corporation Income Tax in a country known for its tax-free status, the UAE’s new Corporation Income Tax will remain one of the most competitive taxation systems in the Middle East, where Corporation Income Tax rates in the Gulf Cooperation Council countries, Egypt, and Jordan span from 10% to 35%.
The UAE Corporations Income Tax procedure is likely to be consistent with other Middle Eastern countries’ legislation. We anticipate that, similar to the Egyptian Corporation Income Tax, the UAE Corporation Income Tax will be imposed on the annual taxable net profit and that Corporations will be required to file an annual Corporate Income Tax self-assessment return signed by the Corporation’s internal or external tax advisor.
Furthermore, any understatement of tax liabilities in the tax return and late payment of the due tax amount will almost certainly result in the imposition of financial penalties. We anticipate that as part of the UAE’s digital transformation, a special Corporation Income Tax return web portal will be created for Corporations to complete a paperless self-assessment.
Advocates on AWS According to the UAE Ministry of Finance announcement, businesses will have plenty of time to prepare for the implementation of the Corporate Income Tax, and additional information on the UAE Corporate Tax regime will be provided around the middle of 2022 to help businesses get ready and fully compliant.
We will provide you with further updates as they become available.