Corporate Tax

What Is Corporate Tax? 

Corporate tax is a form of direct tax imposed on the net income or profit that companies and businesses make. Corporate tax is ruled by the Federal Decree Law No. 60 of 2023 Amending Certain Provisions of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. 

Businesses will become contingent on UAE Corporate Tax from the beginning of their first financial year that starts on or after 1 June 2023.

Although the UAE is famous for being a low-tax jurisdiction for businesses, important reforms, including a federal corporate tax, VAT, and other taxes, have been introduced. 

Objectives of Corporate Tax 

• To establish as the global thought leader for businesses and investment.
• To advance the transformation and development to achieve the set goals. 
•  To pledge its allegiance to international tax transparency and avert any harmful tax practices.  

Who Does Corporate Tax Apply to: 

1. All businesses and corporations that are doing business with the commercial, business or trade license in the UAE. 
2. Free Zone businesses (assigned economic areas within the UAE where businesses receive special tax and regulatory benefits). 
3. Foreign (non-residential) entities, if they are conducting a business in UAE (ongoing or regular).
4. Banking and financial institutions, including branches of foreign banks. 
5.  Businesses engaged in sectors like real estate, construction, property development, agency activities, and other commercial operations. 

CT Effective Date

• The corporate tax system applies to financial years starting on or after 1 June 2023. 
• For companies operating on a calendar year (1 Jan–31 Dec), corporate tax will apply from 1 Jan 2024. 
• The first tax return will generally be due within nine months of the end of their tax period. 

Corporate Tax Rates 

As per the Ministry of Finance: 

• 0% for annual taxable profit up to AED 375,000. 
• 9% for annual profits above AED 375,000. 
• A separate tax rate is yet to be determined; it will apply to large multinational corporations that meet the eligibility criteria aligned with the OECD’s Base Erosion and Profit Shifting (BEPS) Pillar Two framework.

Free Trade Zones 

• Qualifying Free Zone Persons (QFZPs) can qualify for 0% CT on qualifying income. 
• However, free zone entities must file an annual CT return. 
• Entities doing business in the Free Zone and the Mainland must consider the structure carefully as the taxes may vary. 

Losses & Group Relief

• Tax losses can be carried forward to offset future taxes.
• Group relief provisions may be available: tax grouping, group compliance and consolidated tax returns may be available in certain circumstances for companies within the group to offset losses. 
  

**Administration, collection and enforcement of UAE corporate tax will be managed by the Federal Tax Authority. 

Source: Ministry of Finance