The UAE Ministry of Finance (MoF) on 31st January 2022, had announced the introduction of the Federal Corporate Tax (CT) on business profits effective for financial years starting on or after 1 June 2023. After the issuance of a Public Consultation Document and a series of discussions, on 9th December 2022, the much awaited Corporate Tax Law (Federal Decree Law No. 47 of 2022 on Taxation of Corporations and Businesses) was officially published by the Federal Tax Authority (FTA).
CT Landscape and Timelines:
- Jan 2022 - Announced introduction of Corporate tax law
- April 2022 - MoF issued PCD inviting feedback on proposed law
- May 2022 - All Inputs under PCD given by 19-05-2022
- Dec 2022 - Federal Decree on CT released
- June 2023 - Effective date of CT in UAE
Resident Taxable Person: A resident taxable person shall be subject to UAE CT on its worldwide income, and includes the following persons:
Juridical persons incorporated in the UAE (includes a Free Zone Person);
Foreign juridical persons having POEM in UAE;
Natural persons who conduct business/business activity in UAE;
Any other person as may be specified.
Non – Resident Taxable Person: A Non-resident taxable person is defined as a person who is not considered a Resident Person AND either:
Has a PE in the UAE;
Derives UAE sourced income;
Has a nexus in UAE
Normal Regime: CT shall be computed at 0% on the taxable income up to AED 375,000 and at 9% on the taxable income exceeding AED 375,000.
Qualifying Free Zone Persons: In case of Free Zone Persons who have substance in the UAE, derive ‘Qualifying Income’, does not elect to be subject to normal regime and fulfill the other prescribed conditions to become a ‘Qualifying Free Zone Person’, they shall be subject to CT @ 0% on their Qualifying Income and @ 9% on Non-Qualifying Income. Such persons may, however, elect to be subject to the normal tax regime.
Exempt Persons: The CT Law has defined certain persons as Exempt for CT purposes, such as Government Entity or Government Controlled Entity businesses engaged in extraction & exploitation of UAE natural resources, businesses engaged in non-extractive natural resource business, qualifying public benefit entities, qualifying investment funds etc., subject to the fulfilment of the prescribed conditions.
CT Registration: All taxable persons shall be required to register for CT, except:
A Govt. entity (unless it becomes a taxable person);
A Govt. controlled entity (unless it becomes a taxable person);
A Person engaged in an Extractive Business that meets prescribed conditions (unless it becomes a taxable person);
A Person engaged in a Non-Extractive Natural Resource Business, that meets prescribed conditions (unless it becomes a taxable person);
A Non-Resident Person that derives only State Sourced income (as defined in the CT Law) AND does not have a PE in the UAE.
Filing CT Returns: A Taxable Person must file the CT Return and make the tax payment (if any) to the Authority within 9 months from the end of the relevant tax period.
While the above is a concise summary of some of the basic and fundamental provisions of the CT Law, the complete text of the Law is quite elaborate. The crux of the Law is contained in the Federal Decree Law No. 47 of 2022, which is further elaborated vide various Ministerial & Cabinet Decisions issued from time to time. Hence, considering the vastness of the Law and its various provisions, it is necessary that businesses are geared up to gain an in-depth knowledge of the Law so as to study its impact and ensure its smooth implementation & compliance. Any incorrect understanding or interpretation of the Law shall have an adverse impact on ensuring compliance with it, sometimes resulting in serious consequences in the long run. Hence, it is important that we get things right since the beginning.
Our team of experts shall be glad to assist your business with carrying out a CT Impact Analysis, prepare for its implementation, and at a later stage, with the whole set of compliance requirements under the CT Law, including but not limited to CT Registration and filing of the CT Returns. Please reach out to us for any assistance.