On 31 January 2022, the UAE Ministry of Finance announced that the country will introduce a federal Corporate Tax on business profits. It is the biggest change to the UAE’s tax system since VAT in 2018, and it will affect almost every business in the country.
The headline points
- Corporate Tax will apply from financial years starting on or after 1 June 2023. For a business with a calendar financial year, the first tax year will be 2024.
- The standard rate will be 9%.
- A 0% rate will apply to taxable profits up to AED 375,000, to support small businesses and start-ups.
- Free zone businesses will be able to keep their existing incentives, provided they comply with regulatory requirements and do not conduct business with the mainland.
- There will be no tax on individuals’ personal income from employment, real estate or other investments held in a personal capacity, where no licence is required.
- Large multinational groups may be subject to a different rate in line with the global minimum tax being developed internationally.
What we do not know yet
The detailed law has not yet been published. Important questions, such as how taxable profit will be calculated, which income will be exempt, how losses and groups will be treated, and what records will be needed, will be answered when the legislation and guidance are released.
What businesses can do now
- Make sure your accounts are reliable. Corporate Tax will be calculated from your financial statements, so accurate bookkeeping becomes essential.
- Map your structure. List your companies, branches, shareholders and transactions between related parties.
- Consider your financial year. Your year-end decides when Corporate Tax first applies to you.
- Free zone businesses should review how much of their income comes from the mainland.
We will publish more detail as the law is released. In the meantime, if you would like to talk about what the announcement means for your business, please get in touch.
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.
