UAE Corporate Tax: Everything You Need To Know

In a first, The United Arab Emirates (UAE) on Monday 31st January 2021 announced it would introduce a federal corporate tax on business profits, with effect from June 1, 2023. The federal corporate tax, however, kept the rate at a low 9 percent,  to maintain its attractiveness for businesses.

UAE has always enjoyed much of a tax-free regime with revenue sources from oil sales to other countries, tourism, and other hydrocarbons. 

List of things to know about UAE Corporate Tax

This move is stated to be the first in a series of activities the UAE is taking up to diversify its income portfolio from concentrating on a specific industry. 

Applicability of UAE CT Law

• The new laws will apply to all individuals or companies having a commercial license to conduct any activity from which income is earned except for the extraction of natural resources, which will remain under Emirate corporate taxation.
• Applicable on the income earned from activities carried out under a freelance license or permit.
• Dividend and capital gains earned by commercial businesses from their qualifying shareholdings and qualifying intra-group transactions and reorganizations shall be exempt provided necessary conditions are met.
• Free zone businesses will be subject to UAE CT Law, but the UAE Corporate Tax regime will continue to honor the CT incentives

Not Applicable to the Following

• Individuals with income from salary and other employment
• Income from dividends, capital gain, and other income earned from owning shares or other securities in their capacity.
• Income from interest and other income from bank or saving scheme 
• Income from investment in real estate in a personal capacity
• Foreign Investors’ income from dividends, capital gain, interest, royalties, and other investment returns

International Standards

After oil prices dipped dramatically in mid-2015, various emirates in the UAE have been steadily introducing fees and taxes to boost their revenue.

For example, the government of UAE reduced some subsidies and imposed a 5% value-added tax on most goods and services, a standard tax that is still lower than in many countries around the world. 

The UAE, in recent times, has taken steps to try and retain foreign investors, including loosening restrictions on business ownership rules and granting longer-term visas for some businessmen. It has also deregulated some of its Islamic laws around alcohol and unmarried couples and moved to a Monday-to-Friday workweek.

The CT Rates are

• 0% for taxable income up to AED 375,000.
• 9% for taxable income above AED 375,000; and
• A different tax rate for large multinationals regarding ‘Pillar Two’ of the OECD base erosion and profit shifting project.

Effective Date

The UAE CT Law regime will become effective for financial years starting on or after 1 June 2023. A business that has a financial year starting on 1 July 2023 and ending on 30 June 2024.

In case of non-compliance, businesses will be subject to penalties under the CT regime. Further information on the UAE Corporate Tax Law, compliance obligations, and applicable penalties will be released in due course by the government.

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