Significant fiscal transformation with the implementation of corporate income tax. This move marks a groundbreaking shift in the country’s tax landscape and signifies a new era for businesses operating in the UAE. The introduction of corporate income tax represents a strategic step towards diversifying the UAE’s revenue streams and fostering economic sustainability.
Tax will be levied at a rate of 9 % on taxable income exceeding AED 375,000. The corporate income tax applies to entities referred to as “Taxable Persons.” under the law. These include the following categories:
- UAE companies and other legal entities that are incorporated or effectively managed and controlled within the UAE.
- Individuals (natural persons) who engage in business or business activities within the UAE, as defined in a Cabinet Decision.
- Non-resident legal entities (foreign companies) that have a permanent establishment in the UAE.
In summary, the tax is applicable to UAE-based companies, individuals conducting business in the UAE, and foreign companies with a permanent establishment in the UAE.
According to the directive from the Ministry of Finance, certain entities are exempted from corporate income tax. These exemptions include:
- Government and government-controlled entities.
- Extractive businesses and non-extractive natural resources businesses.
- Quality public benefit entities.
- Public or private pension and social security funds.
- Qualifying investment funds.
- Wholly-owned and controlled UAE subsidiaries of a government-controlled entity, qualifying investment fund, or a public and private pension or social security fund.
- Businesses undergoing liquidation or termination.
- Personal income earned from employment, investments, and real estate without licensing requirements.
- Salary, including perks, allowances, and bonuses.
- Residential rental income on real estate.
- Investment income from bonds, shares, and other securities.
It’s important to note that some of these exemptions are subject to specific conditions that must be met. Additionally, freelance income up to Dh1 million is exempted from the corporate income tax. The outlined exemptions reflect the Ministry of Finance’s directive and provide clarity on the entities and types of income that are not subject to the corporate income tax. We expect further guidance to be provided by both the Ministry of Finance and the UAE Federal Tax Authority at later stages.
With the commencement of corporate income tax, businesses in the UAE are advised to review their financial and operational strategies to align with the new tax requirements. This includes understanding the applicable tax rates, identifying eligible deductions and exemptions, ensuring accurate record-keeping, and establishing robust tax compliance frameworks.
Moreover, companies may need to reassess their cost structures, pricing strategies, and overall business models to accommodate the potential impact of corporate income tax on their profitability.
Seeking professional advice from tax/legal consultants can prove invaluable during this transitional period, ensuring compliance while optimizing tax efficiencies.
Seek Legal Counsel
Our expertise in tax law and regulations allows us to provide clients with effective and accurate tax advice, taking into consideration their unique circumstances and needs. Additionally, our experience and knowledge in handling tax disputes enable us to represent clients in negotiations with tax authorities, as well as in court proceedings.
Our track record of successfully resolving tax disputes and helping clients minimize their tax liabilities has likely earned us a reputation as a trusted and reliable tax advisor. Our tax team, led by our Head of Tax and Financial Crimes, Mohamed El Baghdady, has successfully advised and represented clients across various industries, including, but not limited to, consumer goods and retail, services, real estate, oil & gas and banking and finance, before the government authorities, tax tribunals and courts. Our clients have been successful in multiple tax disputes before the committees and courts.
We are happy to support you whenever you need tax advice, consultation, or representation in a legal dispute. For further information, please contact Mohamed El Baghdady, Head of Tax and Financial Crimes on mohamed.elbaghdady@habibalmulla.com.
