UAE’s Historic Milestone: Commencement of Corporate Income Tax Marks a New Era for Businesses
June 1, 2023
As of June 1, 2023, the United Arab Emirates (UAE) has embarked on a 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.