UAE Ministry of Finance has announced the introduction of corporate tax on business profits which will be effective from financial year starting from June 1, 2023. Here are the details being published in a series of articles.
You can read the Corporate Tax overview here: Overview
Q) Who will be subject to UAE CT?
UAE CT will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation.
Q) How do you determine whether a legal entity has a “business” that will be within the scope of UAE CT?
All activities undertaken by a legal entity will be deemed “business activities” and hence be within the scope of UAE CT.
Q) How do you determine whether an individual has a “business” that will be within the scope of UAE CT?
This would generally be done by reference to the individual having (or being required to obtain) a business licence or permit to carry out the relevant commercial, industrial and/or professional activity in the UAE.
Q) How do you determine the business profit / income that will be subject to UAE CT?
The taxable income will be the accounting net profit of a business, after making adjustments for certain items to be specified under the UAE CT law. The accounting net profit of a business is the amount reported in the financial statements prepared in accordance with internationally acceptable accounting standards.
Q) What will the UAE CT rates be?
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 that meet specific criteria set with reference to ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project
Q) What is meant by “large” multinationals?
A multinational corporation is a corporation that operates in its home country, as well as in other countries through a foreign subsidiary, branch or other form of presence / registration. Merely earning income from outside its home country without a foreign presence or registration would not make a business a multinational corporation.
In the context of the global minimum effective tax rate as proposed under ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project,” large” refers to a multinational corporation that has consolidated global revenues in excess of EUR 750m (c. AED 3.15 bn).
Q) Will an individual’s salary income be subject to UAE CT?
UAE CT will not apply on an individual’s salary and other employment income (whether received from the public or private sector).
Q) Will an individual who has a commercial license to carry out business in the UAE be subject to UAE CT?
Business income earned under a commercial license will be within the scope of UAE CT.
Q) Will an individual who invests in UAE real estate be subject to UAE CT?
The investment in real estate by individuals in their personal capacity should not be subject to UAE CT provided the individual is not required to obtain a commercial license or permit to carry out such activity in the UAE.
Q) Will an individual be subject to CT on investment returns?
Individuals will not be subject to UAE CT on dividends, capital gains and other income earned from owning shares or other securities in their personal capacity.
Q) Will the income earned by a freelance professional be subject to UAE CT?
UAE CT will generally apply to income earned from activities carried out under a freelance license / permit, albeit no CT will be payable unless the annual net income of the freelance professional exceeds AED 375,000 .
Q) Will income earned by an individual from bank deposits be subject to UAE CT?
Interest and other income earned by an individual from bank deposits or saving schemes will not be subject to UAE CT.
Q) If a business has earned taxable income of AED 400,000 in a given financial year, what will be the UAE CT amount payable?
The CT liability will be calculated as follows:
- Taxable income of AED 0 – AED 375,000 at 0% = AED 0
- Portion of taxable income exceeding AED 375,000 (i.e. AED 400,000 – AED 375,000 = AED 25,000) at 9% = AED 2,250
The UAE CT liability for the year will be AED 0 + AED 2,250 = AED 2,250
The final amount of UAE CT payable will be reduced by any foreign taxes incurred on the relevant income (see below under ‘Tax Credits’ section).
Q) Will anyone be exempt from UAE CT?
Businesses engaged in the extraction of natural resources will remain subject to Emirate level corporate taxation and be outside the scope of UAE CT. Information on other UAE CT exemptions and exclusions will be provided in due course.
IMP NOTE: The information in this page is meant to provide an initial introduction to the proposed UAE Corporate Tax (CT) regime in advance of relevant legislation being finalised and promulgated. It is not intended to comprehensively address all possible aspects of the UAE CT regime or to provide definitive answers, and should not be used for individual or business decisions as it does not represent the final legislation. This document is subject to change without notice.
Further information on the technical details and other specifics of the UAE CT regime will be made available in due course.
Reach out to Spectrum Auditing for further details. Call us today for any kind of assistance at +971 4 2699329 or email [email protected] to get all your queries addressed. Spectrum is your partner in your success.