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Lawmakers in UAE have made significant updates in the country’s tax system this year. Following the recent amendments on the VAT Law, now with the Federal Decree-Law No. 47 of 2022 (also known as the “Corporate Tax Law”) new changes are implemented in the taxation of corporations and companies. Thereon, companies will become subject to the new UAE Corporate Tax Law from the beginning of their first financial year, starting after June 1st 2023.
Corporate Tax (CT) is a direct tax levied on the net taxable income from the business operations of corporations and other entities; the statutory tax rates are as follows:
· 0% on taxable incomes up to AED 375,000 (approx. 102,100 $);
· 9% on taxable incomes above AED 375,000;
· A different tax rate (still not specified) shall be applicable for large multinationals that meet specific criteria.
Taxpayers subject to CT shall be all companies and individuals, who conduct relevant business activities under a UAE commercial license such as:
1. Companies registered in free-trade zones (available CT incentives will continue to be offered to businesses therein, which comply with relevant regulatory requirements and that do not conduct business set up in the mainland of the UAE);
2. Foreign entities and individuals, as long as conducting ongoing and/or regular trade/business within the UAE;
3. Banking operators;
4. Businesses engaged in real estate management, construction, development, agency, and brokerage activities.
CT shall be exempt for specific entities, such as government entities, government-controlled entities, qualifying investment funds, and entities engaged in the extraction of natural resources; notwithstanding, they shall eventually remain subject to the current Emirate-level corporate tax.
Exemption of CT also applies for dividends and capital gains earned by a UAE business from its qualified shareholdings, and intra-group transactions or reorganizations will not be subject to CT upon meeting certain requirements.
Also, in other cases, CT will not be applied, as summarized below:
· All the individual earnings salariesand other employment income, both from the public and the private sectors;
· Interests and other income earned by an individual from bank deposits or saving schemes;
· Foreign investor’s income earned from dividends, capital gains, interest, royalties, and/or other investment returns;
· Individual investments in real estate;
· Dividends and other income earned by individuals from owning shares or other securities.
By introducing CT, the UAE aims to secure its position as a leading global hub for business and investment, and to reaffirm its commitment to meeting international standards for tax transparency and preventing harmful tax practices.
From the beginning of the next year, all foreign enterprises shall adapt to the new Corporate Tax Law. The changes represent UAE as a dynamic country continuously improving its regulation to meet foreign investors’ needs.
At PHC Advisory, we are constantly updating our knowledge-base on the legal changes in the countries where our clients are engaged in or wish to invest in; we are ready to support them in the most professional and timely way. Do not hesitate to contact us at info@phcadvisory.com for our services.
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