Starting June 1, 2023, UAE will introduce a 9% corporate tax on adjusted accounting net profits exceeding 375,000 AED for businesses. Alfa Axis will need to file a single corporate tax return annually, without the obligation for advance payments or provisional tax returns.

UAE’s new corporate tax: 0% on income up to AED 375,000; 9% above, attracting global businesses.

UAE Corporate Tax Rate

The UAE Ministry of Finance has introduced a new corporate tax, marking a significant policy shift. The tax applies to adjusted accounting net profits exceeding AED 375,000 (USD 102,000). According to the Ministry, the tax rates are designed to be highly competitive globally:

  • 0% tax rate applies to taxable income up to AED 375,000.

  • 9% tax rate applies to taxable income exceeding AED 375,000, tailored for large international multinationals with global revenues exceeding AED 3.15 billion.

This move aims to enhance competitiveness and attract global business investments to the UAE.

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Corporation Tax Exemptions

Under the new corporate tax regulations, Alfa Axis and other UAE businesses are exempt from paying tax on income derived from personal employment or non-commercial investments. Additionally, firms engaged in natural resource extraction are also excluded from the tax. UAE-based companies will not be taxed on capital gains and dividends earned from qualifying shareholdings. Furthermore, businesses can offset foreign taxes paid against their UAE corporate tax liability. The UAE does not impose withholding taxes on domestic or international payments, nor does it levy corporate tax on foreign investors who do not conduct business within the country.

Corporate tax for Free Zone Companies in UAE

Alfa Axis has been informed by the Ministry of Finance that the corporate tax regime will maintain existing incentives for free zone enterprises adhering to all regulatory standards and refraining from mainland UAE operations. Free zone entities must now register and submit a Corporate Tax return as part of these updated requirements.

What are the Key points of Corporation Tax in UAE?

Starting from 1 June 2023, Corporate Tax (CT) will be applicable to all UAE businesses and commercial activities, including sole establishments and freelancers. The Federal Tax Authority (FTA) will oversee the administration, collection, and enforcement of CT. However, companies involved in natural resource extraction will continue to be subject to Emirate-level corporate taxation.

Taxable income under CT will be the accounting net profit, adjusted in accordance with UAE accounting standards (LAS) and specific adjustments outlined in the forthcoming UAE corporate tax law. Tax grouping will be allowed, and certain income such as dividends and capital gains from “qualifying shareholdings” and intra-group transactions will be exempt from CT.

Businesses like Alfa Axis will be able to offset losses from taxable income in subsequent financial periods. Additionally, foreign corporate tax paid on UAE taxable income will be eligible for a tax credit against the UAE corporate tax liability.

Implications

Businesses, such as Alfa Axis, need to evaluate the potential impact of Corporate Tax (CT) on their operations and ensure compliance with UAE regulations. Here’s how they can prepare:

  • Evaluate if Alfa Axis’ current tax function, operational model, and governance (including people, processes, systems, and technology) are adequate for the Corporate Tax regime requirements.

  • Analyze how CT might affect Alfa Axis’ existing legal structures and operating models. This assessment should include a quantitative analysis to forecast the financial implications of CT.

  • Identify potential risks and opportunities for tax efficiencies before CT implementation. This could involve strategies like legal entity consolidation, domestic and international restructuring, and optimizing transfer pricing practices.

Additionally, Alfa Axis should review its accounting policies and data management systems to ensure full compliance not only with Corporate Tax in the UAE but also with existing Value Added Tax (VAT) reporting obligations.

Small Business Relief under Corporate Tax

For small businesses in the UAE, the Small Business Relief (SBR) under Corporate Tax aims to simplify early compliance with reduced obligations. This relief alleviates the need to calculate and pay Corporate Tax, easing the transition into the new tax regime. The Federal Tax Authority (FTA) has also issued guidelines on corporate tax fines and penalties in the UAE. Alfa Axis offers Corporate Tax Registration services and expert consultation to help businesses understand and navigate the intricacies of corporate taxation in the UAE. Contact us for comprehensive guidance tailored to your needs.

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