UAE Corporate Law Published – What this Means to Your Business

The UAE’s MoF (Ministry of Finance) outlined their implementation of a new corporate tax regime in December 2022. The Federal Decree-Law No.47 of 2022 on the Taxation of Corporations and Businesses (click for PDF download) is due to become effective for accounting periods starting on or after the 1st June 2023. From this date, anti-avoidance and transitional regulations will apply to all corporations in the region.

Rates

With a rate of 9%, The Corporate Tax Law follows international taxation’s best practices and applies to both residents and non-residents. However, as with many tax systems there will be a 0% rate applied to incomes below a certain threshold. Information in the detailed 158 FAQ’s released at the same time defines that threshold as AED375,000.

Indications are that a 2nd pillar will apply to large multinational entities, although as of yet, there is no further information on the expected threshold.

Scope for Taxation

Whilst dividends and capital gains will remain exempt (subject to the participation exemption), worldwide income for UAE businesses will be taxable. Where foreign income has been subject to tax of 9% or greater, the law allows foreign branch profits exemption. For such incomes, foreign tax credits will be available.

UAE sourced income is defined as income earned in the UAE, including that derived from assets located and activities performed in the UAE; or economic gain from rights associated with the UAE.

With the above in mind, UAE residents and natural persons are subject to tax on income deemed to be earned through business activities within the region. For non-residents, the tax will apply to income related, UAE sourced income, as well as income related to a permanent establishment (PE) or nexus with the UAE.

Exemptions

Various exemptions are outlined within the 158 FAQs, and the following persons or entities will be exempt from tax:

• Government and entities under its control.
• Pension and social security funds.
• Qualifying investment funds.
• Charities, public benefit organisations and qualifying public benefit entities.
• Persons engaged in the exploitation of natural resources, both extractive and non-extractive, within the UAE.

Additionally, the exemptions can extend to entities controlled and owned by exempt persons, incorporated in the UAE under the following guidelines:

• The entity invests funds or holds assets for the exempt person.
• Partially or wholly undertakes the exempt persons activity.
• Continues activities additionally to those of the exempt person.

What this Means for Free Zones

For entities established in any of the UAE’s Free Zones and meeting the conditions of the Free Zone CT regime, the following rates apply:

• 0% on qualifying income.
• 9% on taxable income not meeting the defined qualifying income.

These rates are automatically applicable, although a qualifying free zone person is able to opt into the regular regime and rates.

Qualifying free zone persons are defined as free zone entities meeting the following criteria:

• Maintaining sufficient substance in the UAE.
• Qualifying income must be derived as specified in a Cabinet Decision.
• Complicit with transfer pricing rules, as well as maintaining the relevant transfer pricing documentation, whilst also
• Having not opted into the regular CT regime and rates.

Free zone entities must register and file corporate tax files, whether qualifying or not.

If you are looking to register a company online in the UAE, SFM corporate services can help, with our 5 simple steps. The cost to register a company covers all documentation as well as a dedicated SFM agent. If you require any more information, you can get in touch here.