The UAE CT explained

Hanan Abboud, Partner, M&A & International Tax, PwC, explains the implications of the UAE’s recently announced federal corporate tax (CT)

On January 31, 2022, the UAE Ministry of Finance (MoF) announced the introduction of a federal corporate tax (CT) in the UAE that will be effective for financial years starting on or after June 1, 2023. The UAE CT will be applicable across all emirates and will apply to all business and commercial activities alike, except for the extraction of natural resources, which will continue to be subject to emiratelevel taxation.

For businesses with an income of up to AED 375,000, the UAE CT rate will be zero per cent. For incomes above AED 375,000 the rate will be nine per cent, although there is some indication that there will be a different tax rate for large multinationals.

Free zone businesses will be within the scope of UAE CT and required to register and file a CT return but will continue to benefit from CT holidays/zero per cent taxation if they comply with all regulatory requirements and do not conduct business in mainland UAE.

CT will be payable on the accounting net profit reported in the financial statements of the business, with minimal exceptions and adjustments. Tax losses incurred from the CT effective date can be carried forward to offset taxable income in future financial periods. The Federal Tax Authority will be responsible for the administration, collection, and enforcement of CT.

No UAE CT will apply to:

■ Employment income, income from real estate, income from savings, investment returns and other income earned by individuals in their personal capacity that is not attributable to a UAE trade or business.

■ Dividends, capital gains and other investment returns earned by foreign investors.

Exemption from UAE CT will be available for:

■ Capital gains and dividends earned from qualifying shareholdings. ■ Qualifying intra-group transactions and restructurings.

Hanan Abboud, Partner, M&A & International Tax, PwC, says: “The introduction of UAE CT will have an impact on the tax and compliance costs of most UAE businesses. Businesses will require clear identification of the tax implications and available optimisation/mitigation strategies, and any required changes to their corporate structure, operating model(s), finance/tax function, reporting systems, legal agreements, and TP policies to ensure compliance with the new UAE CT regime. It is important that businesses evaluate the impact of the introduction of UAE CT early on and proactively plan for a smooth implementation.

“With a nine per cent statutory tax rate and exemptions and reliefs (that we understand will be based on international best practice) the UAE CT regime should remain one of the most competitive in the world. The UAE will also continue to offer the most competitive CT regime in the region, with Egypt, Jordan, Kuwait, Lebanon, Oman, Saudi Arabia and Qatar imposing CT at rates between 10 per cent to 35 per cent (Bahrain currently does not have a broad-based CT regime).

The key features of the proposed UAE CT regime such as a zero per cent CT for small businesses and startups, exemptions for UAE based headquarters and international business hubs, no taxation on foreign direct investment, no taxation on personal income, and a minimal compliance burden for businesses should strengthen the UAE’s position as a global hub for business and investment and a leading international financial centre.” pwc.com

The UAE will also continue to offer the most competitive CT regime in the region