Long considered a “no tax” jurisdiction, on January 31, 2022, the Ministry of Finance announced that the United Arab Emirates (UAE) will introduce a federal Corporate Tax (CT) on business profits effective for financial years starting on or after June 1, 2023. The Ministry of Finance has stated that the CT regime “is intended to help the UAE achieve its strategic ambitions and incentivize businesses to establish and expand their activities in the UAE”
The basic outline of the CT system was outlined in this Public Consultation Document. Highlights include:
- The proposed corporate tax rates are:
- 0% for taxable income up to AED 375,000
- 9% for taxable income above AED 375,000
- Dividends and capital gains earned by a UAE business from its “qualifying shareholdings” and “qualifying” intra-group transactions will be exempt from UAE CT tax.
- UAE CT will generally not be levied on a foreign investor’s income from dividends, capital gains, interest, royalties, and other investment returns.
- A UAE group of companies can elect a tax group and file a single tax return for the entire group.
- Foreign corporate income tax paid on UAE taxable income will be allowed as a tax credit against the UAE CT liability.
The terms of the CT system released are preliminary and subject to change as well as likely to be supplemented with more detailed guidance as we approach next year’s implementation date.
WG Observation: Multinational companies doing business in the UAE need to monitor the potential impact of the UAE CT system and consider how this tax will impact a business’s global effective tax rate. Prior to this change, many multinational operations were structured to enhance their footprint in the UAE due to its tax-free environment. Such structures should be reviewed with the release of these proposed details of the UAE CT system.