As you all know, corporate tax in the UAE is now expanding, and most UAE companies' tax and compliance requirements are expected to change completely. At VVAS, our dedicated tax team will provide the necessary support and resolve your corporate tax issues.

The UAE has decided to levy corporate income tax (CIT) on business profits. It will be valid for fiscal years beginning in June 2023 or later.

The UAE is new to corporate tax; therefore, companies now need the advisory assistance of a professional tax team. VVAS is an FTA-approved tax agent with over 50 professional staff members serving over 800 tax service clients in the UAE. As a member firm of VVAS, the firm has global experience and can assist companies in complying with the CT once it goes into effect.

What is Corporate Tax UAE?

The UAE is home to an essential corporate gateway for Dubai, and it will resume having one of the low corporate tax rates in the world. The suggestion arises from the UAE's intent to compete with international tax rules. It mirrors similar efforts by other Gulf countries while reducing the regulatory burden on UAE companies and protecting small businesses and start-ups.

Suggested Corporate Tax Rates UAE

Here are the suggested corporate tax rates:

A 0% tax on AED 375,000 income,
A 9% tax over AED 375,000 income,

Additionally, MNCs subject to the OECD Base Erosion and Profit Sharing Act falling under pillar 2 of the BEPS 2.0 framework, i.e. with total global revenue exceeding AED 3.15 billion, will receive different tax rates.

Why does the UAE impose corporate income tax?

Enhance the country's status as a significant business and investment centre
Accelerate the UAE's development and transformation process to achieve its strategic goals
Addressing International Tax Transparency Standards
Remove harmful tax methods from the system
Reduce reliance on oil revenue

Future Opportunities Through UAE Corporate Tax

The UAE has enforced a federal tax strategy that applies to all establishments and business activities in the UAE. Let's take a look at the extent of corporate tax explained below.

The planned corporate income tax system is designed to apply to all commercial, industrial and industrial sectors, except for the current emirate-wide levy of up to 55% on natural resource extraction and 20% on foreign bank branches—professional business in the United Arab Emirates.

Companies established in the Free Zone must meet all regulatory standards and not conduct business with the UAE mainland.

All UAE companies are subject to corporate tax, except for companies involved in producing natural resources, mainly oil gas, and branches of foreign banks.

All operations of legal entities are considered "commercial activities" and are subject to the corporate tax framework.

Local profits from UAE companies.

Furthermore, bonuses paid by international companies and capital gains on the sale of shares in UAE and foreign companies will also be exempt from cash transfers if certain conditions are met.

If the free zone person is a holding company and all of its income is primarily derived from shares in a subsidiary that qualifies for the participation exemption, capital profits emerging from the sale of the free zone person's shares will be exempt from CT tax.

A UAE company with a foreign subsidiary can claim exemption from foreign branch profits in two ways:

Claim foreign tax relief on taxes paid in the country where the foreign branch is located, or the Option to apply for their foreign branch profits exemption

How Does Corporate Tax Affect FDI In The UAE?

The implementation of corporate tax is just one example of the UAE's rapid development and expansion. The government aims to restructure the country's economy by moving away from its dependence on oil and gas. It is working to cement its position as a digital and technological powerhouse.

The UAE's intention to change company structures and comply with international regulations can range from the first significant update to labor laws, the removal of the requirement for UAE citizens to own at least 51% of shares in UAE companies, and changes to labor laws.

The working week is Sunday to Thursday to Monday to Friday. The UAE will continue to attract highly skilled professionals as business income will continue to be tax-free, and gains or profits from the personal property will not be taxed. However, these developments have raised the cost of living and business operations.

Impact of corporate tax on free zones in the United Arab Emirates

The UAE plans to deliver on promises to companies registered in the free zone but not doing business with the mainland, which would enjoy corporate tax benefits under the relevant free zone regulations. All free zones require an annual corporate income tax return.

It is common for companies to operate outside of free zones, with a portion of their revenue coming from the internal sale of goods or services. An oversupply of executive orders may be enforced to increase revenue generated onshore. With the relaxation of foreign ownership restrictions and more real estate options, companies headquartered in free zones can consider establishing a foothold on the beach.

Corporate tax for multinational companies

When the UAE introduced one of the lower corporate tax rates in the world in June 2023, the UAE foresaw attracting international companies. It seems paradoxical that a tax on corporate profits would encourage investment and attract global companies. However, if a country manages a competitive tax policy, it can be an ideal location for multinational companies seeking a "transparent and dynamic" land.

MA (Mergers Acquisitions)

The introduction of corporate tax will impact corporate mergers and acquisitions. Investors will welcome that dividends and capital gains from qualifying ownership are tax-exempt. However, more due persistence may be undertaken to ensure that inherited corporate tax liabilities are appropriately addressed. Additionally, companies must assess their existing structures and activities to implement more robust operational frameworks and strategies once counter-terrorism laws are in place and in effect.

Main Content of UAE Corporate Tax

Business income, real estate income, share investment income, or any other personal income not related to UAE trade or business is not subject to tax by natural persons.
Non-residents are taxed on UAE-sourced income and taxable income from a permanent establishment in the UAE.
Corporate tax will be applied to the company's adjusted accounting net profit.
Free zone companies can still benefit from corporate tax benefits if all requirements are met.
The exploitation of natural resources will be exempt from corporate tax, as corporate tax is still payable at the level of emirates and foreign bank branches.
Domestic, cross-border payments and certain dealings are subject to 0% withholding tax (WHT).
If certain conditions are fulfilled, capital gains and rewards are exempt from corporate tax.
Companies in the UAE can form a tax group if certain conditions are completed.
The UAE cash transfer system allows the transfer of tax losses from one group firm to another profitable group company, provided certain conditions are fulfilled.
Group exemption for qualifying transactions and intra-group reorganizations.
The UAE cash transfer system will allow taxes paid in foreign jurisdictions to be credited against the UAE's income tax liability on foreign source income.
Numerous loss and use transfer rules will apply to businesses.
Transfer pricing is applied following OECD guidelines.
Profits are accounted for under International Accounting Standards. But relax for some taxpayers.
Another mechanism for determining taxable income is simplifying some taxpayers' financial and tax reporting obligations (e.g., start-ups and small businesses).

Impact Of Corporate Tax On Uae Companies

Finally, with the introduction of corporate tax in the UAE, significant changes are expected in taxation and compliance costs for most UAE businesses. Entities must comply with the new tax regime, which requires careful identification of tax implications and, where necessary, adjustments to corporate structures, operating models, financial/tax operations, reporting systems, legal agreements, and transfer pricing policies.

Our designated tax team at VVAS will provide the assistance needed and clarify your corporate tax inquiries.

Final Words

One of the most challenging business considerations is determining whether your business profits are subject to corporate tax in the UAE. It gets even more complicated when you need to learn how UAE's money mechanism works.

It would be great if you had a trusted team of experts to help you with these tax challenges. The good news is that our VVAS team has all these professionals. They have extensive knowledge and experience in many tax practices, especially corporate tax and compliance procedures. If you need any advice on the potential impact of UAE sales tax on your business, call us or visit our office or leave a query on our website anytime. We will be more than happy to help you.