UAE issues a federal decree establishing a 9% business tax rate starting next year

Credits: gulfnews.com

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The “Corporate Tax Law” was published by the UAE as Federal Decree-Law No. 47 of 2022 regulating the taxation of corporations and businesses. This means that starting with their first fiscal year that begins on or after June 1, 2023, enterprises will be liable to UAE Corporate Tax (“Corporate Tax”).

The usual rate of corporate taxation in the UAE is 9% for taxable profits over Dh375,000. To help small firms and start-ups, profits up to and including that amount will be taxed at 0%.

The Federal Decree-Law on Taxation of Corporations and Businesses, according to the Ministry of Finance (the “Ministry”), is a significant step toward creating an integrated tax system that supports the strategic goals of the UAE, boosts its level of global economic competitiveness, and gives the national economy enough flexibility to interact with and support other financial systems within the framework of the country’s established partnerships.

The Ministry stated that the Corporate Tax structure has been created in accordance with the finest international standards to both encourage investment and make sure the legal principles are well-known and understood.

Importantly, given the diversity of the UAE’s economy and the significance of promoting sustainable development, the ideals of justice and equity across sectors were at the forefront of the Corporate Tax regime’s creation. In order to do this, the Ministry engaged relevant parties through a public consultation process and incorporated comments and suggestions into the Corporate Tax regime’s final design.

The 0% threshold for taxable profits up to and including Dh375,000 has been included, the ministry continued, in recognition of the crucial role that startups and small businesses play in the UAE economy. The 9% standard rate also guarantees that the corporate tax regime is among the most competitive in the world and will strengthen the UAE’s position as a major international business and financial hub.

The UAE’s pledges to enacting a global minimum tax for multinational corporations, promoting tax transparency, and eliminating harmful tax practices are reflected in the Corporate Tax Law as part of the country’s support for the OECD Inclusive Framework on Base Erosion and Profit Shifting.

Corporate tax exemptions are carefully targeted. Natural resource extraction operations are not subject to corporate tax in the nation, however they are nevertheless taxed at the emirate level. Due to their critical relevance and contribution to the social fabric and economy of the UAE, organizations like government institutions, pension funds, investment funds, and public benefit organizations are eligible for additional exemptions.

The existing free zone entities will be qualified to take advantage of a 0% Corporate Tax rate on qualifying income in appreciation of the crucial role that free trade zones play in advancing the country’s economic development.

In recognition of the variety of enterprises that will fall within the purview of the new Corporate Tax regime, the criteria for corporate tax compliance and administration have been adapted to suit different categories of taxpayers. In addition, the Corporate Tax framework generously allots relief for transfers and restructurings within groups and permits group firms to share available tax losses.

Salaries and other personal income from employment, whether it is generated through work in the government, semi-government, or private sector, are exempt from corporate tax under the rules of the Corporate Tax Law. Corporate Tax is not applied to interest or other personal income from bank deposits or savings plans, nor is it applied to individual real estate investments made in their individual capacities.

For the purposes of bilateral and multilateral agreements as well as the international exchange of information for tax purposes, the Ministry will continue to be the “competent authority.” The Corporate Tax Law’s administration, collection, and enforcement will fall within the purview of the Federal Tax Authority.

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