all you need to know

The UAE government on Friday issued a new decree to implement the country’s corporate tax law, which will come into effect next year.

Under the new tax regime, companies and other businesses with taxable profits exceeding AED375,000 ($102,000) will be forced to pay the standard rate of 9 percent from June 2022 onwards.

According to the Ministry of Finance, the corporate tax will help the UAE achieve its growth and transformation ambitions. This rate is said to be the lowest in the Gulf Cooperation Council (GCC) region.

Here’s everything you need to know about the new corporate tax:

Who pays the corporate tax?

Businesses with taxable net profits exceeding AED 375,000 will be required to pay corporate tax. These include UAE companies incorporated or managed and controlled in the UAE, as well as some entities in free zones.

exemption

Individuals employed by the government, semi-government or private sector are not subject to corporate tax. Income from bank deposits or savings plans, as well as property investments made by individuals, will not be subject to the new tax.

Public or private pension and social security funds, qualified investment funds, and government entities, wholly-owned and majority-owned UAE subsidiaries of government-controlled entities, are exempt subject to certain conditions being met.

Existing free zone entities will be eligible to benefit from a zero corporate tax rate on qualifying income.

Natural resource extraction activities are also tax-free, but are still subject to prevailing local taxes.

When does corporate tax come into effect?

The new tax will take effect for fiscal years beginning on or after June 1, 2023, the Treasury Department said.

Companies or entities whose financial year begins on July 1, 2023 and ends on June 30, 2024 must pay the new tax from July 1, 2023.

Companies or entities whose financial year begins on January 1, 2023 and ends on December 31, 2023 must pay taxes from January 1, 2024.

Are UAE entities owned by GCC or UAE citizens taxed?

The tax applies to entities with an income threshold of AED 375,000. The law does not distinguish between nationality or residency, so it applies to any entity regardless of the citizenship or residency of the founders or owners.

Will the new tax be implemented across the UAE?

The new corporate tax will be implemented across all emirates in the UAE.

Are there other taxes that the entity has to pay?

According to the Ministry of Finance, some businesses may still be subject to corporate tax and “emirate tax”. Emirate tax paid will not be credited or otherwise reduce the amount of corporate tax payable.

However, businesses engaged in certain activities in the UAE, such as the extraction of natural resources, are subject to “emirate-level taxes” and are therefore not covered by corporate tax. But these businesses still need to meet “certain conditions”.

Will corporate tax replace VAT?

Value Added Tax (VAT) is a different type of tax. It will continue to be collected in the UAE. If an entity is obliged to pay VAT and corporate tax, it must pay the taxes separately. Those businesses that are not VAT registered may still be subject to corporate tax.

Will GST replace corporate tax?

This is another form of taxation. GST will continue to be imposed in the UAE.

(Reporting by Cleofe Maceda; Editing by Mily Chakrabarty)

Cleofe.maceda@lseg.com