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With
effective from 01st June 2023, the new corporate tax will apply to businesses
across all Emirates, with an exception for the extraction of natural
resources, which will remain subject to Emirate level corporate taxation.
Foreign entities and individuals will be subject to corporate tax only if
they conduct a trade or business in the UAE in an ongoing or regular manner.
It is important that businesses evaluate the impact of the introduction of
UAE CT early on and proactively plan for a smooth implementation.
Examples:
·
A business that has a financial year
starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE
CT from 1 July 2023 (which is the beginning of the first financial year that
starts on or after 1 June 2023)
·
A business that has a (calendar year)
financial year starting on 1 January 2023 and ending on 31 December 2023 will
become subject to UAE CT from 1 January 2024 (which is the beginning of the
first financial year that starts on or after 1 June 2023)
UAE
Corporate Tax will not be payable by natural persons, provided that they do
not engage in business or commercial activity in the UAE. Taxable
natural persons operating through sole establishments or proprietorships or
as individual partners in an unincorporated partnership, conducting business
in the UAE, will be subject to the CT regime.
Applicable
Rates
CT will
be charged on the annual taxable income of a business as follows:
·
0%, for taxable income not exceeding AED
375,000;
·
9%, for taxable income exceeding AED
375,000; and
·
A different tax rate (not yet specified)
for large multinationals that meet specific criteria set with reference to
Pillar II of the OECD BEPS.
Calculation
of Profit
The UAE
CT regime proposes to use the accounting net profit (or loss) position in the
financial statements of a business as the starting point for determining
taxable income. IFRS standards are typically used by businesses in the
UAE and will form the basis for such assessment, but the CT law will allow
for alternative financial reporting standards.
Losses
The UAE
CT regime will allow a business to use losses incurred (as from the UAE CT
effective date) to offset taxable income in subsequent financial periods. A
loss for CT purposes (tax loss) would arise when the total deductions the
businesses can claim are greater than the total income for the relevant
financial period.
Calculation
of Profit
The UAE
CT regime proposes to use the accounting net profit (or loss) position in the
financial statements of a business as the starting point for determining
taxable income. IFRS standards are typically used by businesses in the
UAE and will form the basis for such assessment, but the CT law will allow
for alternative financial reporting standards.
Losses
The UAE
CT regime will allow a business to use losses incurred (as from the UAE CT
effective date) to offset taxable income in subsequent financial periods. A
loss for CT purposes (tax loss) would arise when the total deductions the
businesses can claim are greater than the total income for the relevant
financial period.
The
relevant CIT legislation is still being finalised and has not been published
yet. Although the regime that will come into force may ultimately diverge
from MOF's announcement, businesses operating in the UAE (in particular
businesses operating in both mainland UAE and in free zones under a dual
licensing scheme) should consider the potential impact of the announced
regime and prepare for the upcoming change in the law.
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