UAE set to impose corporate tax in 2023
The finance ministry said the new tax, the first of its kind in the country, will be applied on a company’s adjusted book net profits exceeding AED 375,000 (USD 102,000) and would be “among the most competitive in the world”. . ”
The new corporation tax will not apply to income from personal labor or investments that do not result from commercial activity. Companies involved in the extraction of natural resources will also be exempt from the new tax and UAE companies will be exempt from paying tax on capital gains and dividends received from their qualifying holdings. Companies will also be able to deduct foreign taxes paid from the amount of UAE corporation tax they are charged.
The Ministry of Finance said the corporate tax regime will continue to honor tax incentives currently offered to companies in the free zone that comply with all regulatory requirements and do not do business with the UAE. continentals. The UAE will also not impose withholding taxes on domestic and cross-border payments, or subject foreign investors to corporation tax if they are not doing business in the UAE.
Younis Haji Al Khoori, Undersecretary of the Ministry of Finance, said: “As a leading jurisdiction for innovation and investment, the UAE plays a pivotal role in helping businesses grow, local and global level. The certainty of a competitive and best-in-class corporate tax regime, along with the UAE’s extensive network of double tax treaties, will cement the UAE’s position as a global hub for business and investment. .
Al Khoori added: “With the introduction of corporate tax, the UAE reaffirms its commitment to upholding international standards of tax transparency and preventing harmful tax practices. The regime will pave the way for the UAE to address the challenges arising from the digitalization of the world economy and other remaining Base Erosion and Profit Shifting (BEPS) concerns and executes its support for the introduction of a minimum tax rate worldwide by applying a different corporate tax rate to large multinationals that meet specific criteria defined with reference to the above initiative.
The finance ministry described the new tax regime’s loss-use rules as “generous” and said it would allow groups in the UAE to be “taxed as a single entity or apply group relief in with respect to losses and intra-group transactions and restructurings”.
Companies will only have to file one corporation tax return per fiscal year and will not be required to make advance tax payments or prepare interim tax returns. Transfer pricing and documentation requirements will apply to UAE companies with reference to the OECD Transfer Pricing Guidelines.
Alexandra Aikman, corporate law expert at Pinsent Masons, said: “This decision is a historic and positive step that will bring the UAE into line with international standards and tax transparency expectations, while ensuring that the region remains a hub for doing business”.
The Department of Finance is expected to release further information on the new tax regime in the summer of 2022, to help businesses prepare for the change in law.