In January 2022, Ministry of Finance announced that, it will introduce federal Corporate tax (CT) on the profits of businesses.
The tax will become applicable on any financial year starting after June 2023, will be applicable a standard rate of CT 9%. CT will be applied across all the emirates.
What is Corporate tax (CT)?
Corporate tax is a form of direct tax levied on the taxable profit of corporations and other entities from their business.
Corporate Tax Rate
As per Ministry of Finance, CT rates are:
- 1. 0% for taxable income up to AED 375,000.
- 2. 9% for taxable income above AED 375,000.
How to calculate your Taxable profit and report CT?
In order to calculate actual and taxable profit, the business must be accounted in all aspects, which means every business transactions (
Sales, Purchase, Stock, Cash and Bank) must be noted and reflected in the financial statement as per International Financial Reporting System (IFRS).The said report must be prepared and submitted at the end of the each financial year.
Corporate Tax applicable to:-
All businesses and individuals conducting business activities under a commercial license in the UAE including Free Zone businesses.
(The UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business set up in the UAE’s mainland.)
Foreign entities and individuals only if they conduct a trade or business in the UAE in an ongoing or regular manner.
Banking operations.
Businesses engaged in real estate management, construction, development, agency and brokerage activities.
Exemptions from CT
Below are the rules regarding exemptions from the Corporate Tax:
- 1. Businesses engaged in the extraction of natural resources are exempt from CT as these businesses will remain subject to the current Emirate level corporate taxation.
- 2. Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from CT.
- 3. Qualifying intra-group transactions and reorganizations will not be subject to CT, provided the necessary conditions are met.
Additionally, CT will not apply to:
- 1. An individual earnings salary and other employment income, whether received from the public or the private sector
- 2. Interest and other income earned by an individual from bank deposits or saving schemes
- 3. A foreign investor’s income earned from dividends, capital gains, interest, royalties and other investment returns
- 4. Investment in real estate by individuals in their personal capacity
- 5. Dividends, capital gains and other income earned by individuals from owning shares or other securities in their personal capacity.
Objectives of CT
By introducing the CT, the UAE aims to:
- 1. Cement its position as a leading global hub for business and investment
- 2. Accelerate its development and transformation to achieve its strategic objectives.
- 3. Reaffirm its commitment to meeting international standards for tax transparency and preventing harmful tax practices.
- 4. Federal Tax Authority (FTA) will be responsible for the administration, collection and enforcement of the CT.
For More Details and support:-
Integrated Accounting Services Co.
+971 527 446 564,
+971 527 446 364.