The United Arab Emirates (UAE) stands as a beacon of economic prosperity, attracting investors from around the globe with its dynamic business environment and strategic initiatives. As part of its ongoing efforts to enhance competitiveness and align with global standards, the UAE is gearing up to implement a new corporate tax regime, set to come into effect from June 2023.
Understanding the New Tax Regime:
At its core, the upcoming corporate tax regime embodies the UAE’s commitment to fostering economic growth while maintaining fairness and equity in taxation. By adopting globally accepted practices, the UAE aims to solidify its position as a leading hub for business and investment, driving sustainable development and prosperity for its residents and stakeholders.
Scope of Application:
The scope of the new tax law extends to both residents and non-residents conducting business activities within the UAE. Residents encompass juridical persons incorporated in the UAE or Free Zones, as well as natural persons engaged in business within the country. Non-residents, on the other hand, may fall under the purview of the tax regime if they possess a permanent establishment, derive income, or have a nexus within the UAE.
Levy of Corporate Tax:
From June 1, 2023, businesses falling under the jurisdiction of the new law will be obligated to adhere to the stipulated tax requirements. The tax rate structure features a tiered approach, with businesses earning up to AED 375,000 enjoying a 0% tax rate. For businesses exceeding this threshold, a 9% tax rate applies. Notably, specific tax rates for large multinationals meeting criteria under the OECD Base Erosion and Profit Shifting Project are yet to be determined.
Tax rate structure:
- 0% for income up to AED 375,000
- 9% for income exceeding AED 375,000
- Specific rates for large multinationals TBD
Administration and Oversight:
The Federal Tax Authority (FTA) will play a pivotal role in overseeing the administration of the corporate tax regime. Tasked with ensuring compliance and facilitating the implementation process, the FTA will work closely with businesses to navigate the intricacies of the new tax framework.
Exemptions and Non-Taxable Incomes:
Certain entities and income sources are exempt from the corporate tax regime, reflecting the UAE’s commitment to fostering a conducive business environment. Government entities, entities engaged in specified businesses, qualifying public benefit entities, and public pensions and social security funds fall under this category. Additionally, dividends and profits earned by residents, income from foreign public establishments, and income from international transportation operations remain non-taxable under the new law.
Taxation in Free Zones:
For businesses operating within Free Zones, the new tax regime presents opportunities and considerations. Designated as Qualifying Free Zone Persons, these entities can avail themselves of a 0% corporate tax rate provided they meet the specified criteria outlined in the law. Compliance with these requirements is essential for businesses to leverage the tax incentives offered within Free Zones.
FAQs:
1. What is the timeline for the implementation of the new UAE corporate tax regime?
The new corporate tax regime is set to come into effect from June 2023 onwards, with businesses required to comply with the stipulated tax requirements from their financial year commencing on or after this date.
2. Who falls under the scope of the new tax law in the UAE?
The new tax law applies to both residents and non-residents conducting business activities within the UAE. Residents include juridical persons incorporated in the UAE or Free Zones, as well as natural persons engaged in business within the country.
3. What are the tax rates under the new corporate tax regime?
The tax rate structure entails a 0% tax rate for businesses with income up to AED 375,000, while those with income exceeding this threshold will face a 9% tax rate. However, specific tax rates for large multinationals meeting criteria under the OECD Base Erosion and Profit Shifting Project are yet to be determined.
4. Which entities and income sources are exempt from corporate tax in the UAE?
Exemptions from corporate tax include government entities, entities engaged in specified businesses, qualifying public benefit entities, and public pensions and social security funds. Additionally, certain income sources such as dividends and profits earned by residents and income from international transportation operations remain non-taxable.
5. How can businesses operating in Free Zones benefit from the new tax regime?
Businesses operating within Free Zones can qualify as Qualifying Free Zone Persons and enjoy a 0% corporate tax rate if they meet specified criteria outlined in the law. Compliance with these requirements is essential for businesses to leverage the tax incentives offered within Free Zones and optimize their tax positions. By embracing the principles of fairness, transparency, and competitiveness, businesses can navigate the evolving tax landscape with confidence, driving continued growth and prosperity in the UAE.
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