1.Introduction
The United Arab Emirates (UAE) published Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses on December 9, 2022 (hence referred to as the “Corporate Tax Law”).
The Corporate Tax Law, which is applicable to fiscal years beginning on or after 1 June 2023, establishes the legal framework for the introduction and operation of a Federal Corporate Tax (the “Corporate Tax”) in the UAE.
The UAE wants to speed up its development and transformation by introducing the Corporate Tax in order to help it accomplish its strategic goals. Together with its wide network of double tax treaties, the UAE will solidify its position as a top business and investment location by guaranteeing a competitive corporate tax environment that complies with international norms.
The UAE Corporate Tax policy is based on worldwide best practises and encompasses concepts that are widely recognised and accepted due to the UAE’s status as a hub for international commerce and the global financial system. This guarantees that the corporate tax system in the UAE is transparent in its ramifications and is easily understandable.
2.What is Corporate Tax?
Corporate Tax is a form of direct tax levied on the net income of corporations and other businesses.
Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.
3.Who is subject to Corporate Tax?
Broadly, Corporate Tax applies to the following “Taxable Persons”:
●UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE;
●Natural persons (individuals) who conduct a Business or Business Activity in the UAE as specified in a Cabinet Decision to be issued in due course; and
●Non-resident juridical persons (foreign legal entities) that have a Permanent Establishment in the UAE (which is explained under Section 8).
Juridical persons established in a UAE Free Zone are also within the scope of Corporate Tax as “Taxable Persons” and will need to comply with the requirements set out in the Corporate Tax Law. However, a Free Zone Person that meets the conditions to be considered a Qualifying Free Zone Person can benefit from a Corporate Tax rate of 0% on their Qualifying Income (the conditions are included in Section 14).
Non-resident persons that do not have a Permanent Establishment in the UAE or that earn UAE sourced income that is not related to their Permanent Establishment may be subject to Withholding Tax (at the rate of 0%). Withholding tax is a form of Corporate Tax collected at source by the payer on behalf of the recipient of the income. Withholding taxes exist in many tax systems and typically apply to the cross-border payment of dividends, interest, royalties and other types of income.
