Key Highlights of UAE Corporate Tax

• UAE announces new federal corporate tax system: The UAE Ministry of Finance announced that a new federal corporate tax system will be implemented in the UAE, effective financial years commencing on or after 1 June 2023. The standard rate of the tax will be 9%, which is the lowest in the GCC region.
  
  

• UAE CT regime features and exemptions: The UAE CT regime has been designed to incorporate best practices globally and minimize the compliance burden on businesses. The tax will apply to all businesses and commercial activities in the UAE, except for those operating in the extraction of natural resources, individuals earning income in their personal capacity, and businesses registered in Free Trade Zones that do not conduct business with Mainland UAE. Some income types, such as dividend income, capital gains, and profits from group reorganization, will be exempt from the tax.

• The Cabinet Decision: Clarity on Corporate Taxation: The Cabinet Decision states that only income streams covered by the tax law are subject to corporate taxes, not personal incomes. This ensures a fair and clear approach to taxation in the UAE.

• Effective date and transitional provisions: The CT will be applicable for financial years starting on or after 1 June 2023. Businesses that adopt a fiscal year starting on 1 June 2023 and ending 31 May 2024 will be subject to CT starting 1 June 2023. Businesses that adopt a calendar year starting 1 January 2023 and ending 31 December 2023 will be subject to CT starting 1 January 2024. Businesses registered in Free Trade Zones will be subject to zero percent tax until the end of the holiday period, provided they comply with all the regulatory requirements of Qualifying free Zones person QFZP.
  
  

• The 1 million AED Threshold: The UAE Ministry of Finance clarified that only businesses with annual revenues above 1 million AED are liable for corporate taxes, not individuals.

• The Taxable Income Sources: The corporate tax law only applies to income from businesses or regulated commercial activities, not from employment, investments, or real estate.

• The Recent Corporate Tax Law and Small Business Relief Program: The UAE introduced a federal corporate tax law with a 99% rate on profits above 375.000 AED and a tax exemption for small businesses with revenues below 3 million AED until 2026.

• Transfer pricing and BEPS 2.0 implications: The UAE CT regime will also introduce the OECD Transfer Pricing Rules which will require all companies to comply with the arm's length principle and documentation requirements for both cross-border and domestic transactions. Moreover, the regime will align with the BEPS 2.0 framework, which will impose different tax rates on multinational enterprises (MNEs) that fall under the scope of Pillar 2.
  
  

• Financial Reporting Framework: Corporate Tax Law has defined a financial reporting framework for small, medium, and big size companies.
  
  a. Cash Basis if Revenue < AED 3 million
  b. IFRS for SMEs if Revenue < AED 50 million
  c. IFRS for Big Size Companies > AED 50 million
  
  

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