The UAE has published its Corporate Tax law, Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. With the law now available, businesses can begin preparing in detail for the tax, which applies to financial years starting on or after 1 June 2023.
Rates
The standard rate is 9%, with a 0% rate expected to apply to taxable income up to a threshold to be confirmed by Cabinet decision, which the Ministry of Finance has indicated will be AED 375,000.
Who is taxed
- UAE companies and other legal entities, including free zone entities.
- Individuals carrying on a business or business activity in the UAE, above a turnover threshold to be set.
- Non-residents with a permanent establishment or certain UAE-sourced income.
Some entities, such as government entities and qualifying public benefit entities, are exempt, in some cases subject to conditions.
Free zones
A Qualifying Free Zone Person can benefit from a 0% rate on qualifying income, provided it meets conditions including adequate substance, compliance with transfer pricing rules and not electing to be taxed at the standard rate. Other income is taxed at 9%.
Calculating taxable income
Taxable income starts from the accounting profit in the financial statements, with adjustments. Key features include:
- exempt income, such as qualifying dividends and capital gains on qualifying shareholdings;
- limits on deductions, including for entertainment expenses and net interest above a percentage of EBITDA;
- tax losses carried forward and set against up to 75% of future taxable income, subject to conditions; and
- tax groups for UAE companies under common ownership.
Transfer pricing
Transactions with related parties and connected persons must follow the arm’s length principle, and documentation will be required for some businesses.
Small business relief
The law allows for relief for small businesses below a revenue threshold, with details to be set by ministerial decision.
Next steps
With registration, returns and records all to come, now is the time to review your accounting, your group structure and your free zone position. We can help you assess how the law applies to you.
This article is general information based on the rules as we understand them at the date of publication. It is not advice on your circumstances. Laws and practice change, so please speak to us before acting on it.
