Corporate Tax in the UAE: Everything You Need to Know
Background
To align with international tax transparency standards and prevent harmful tax practices, the UAE Ministry of Finance (MoF) introduced Federal Corporate Tax. Effective from 1 June 2023, the UAE Corporate Tax (CT) has a competitive rate of 9%. The MoF has issued various Decisions, Guides, Public Clarifications, FAQs, etc. to clarify the law's scope and application.
Understanding Corporate Tax is vital for businesses operating in the UAE, impacting strategic planning and compliance.
Key Features of the Corporate Tax Law
Corporate Tax is a direct tax on taxable income, determined after specific adjustments to net income or profit.
Taxable Persons
1. Residents:
- UAE-incorporated juridical persons (including Free Zones)
- Natural persons conducting business in the UAE
- Foreign juridical persons managed and controlled in the UAE (POEM)
2. Non-Residents:
- Permanent establishments in the UAE
- UAE-sourced income
- Nexus in the UAE (pending clarification)
Corporate Tax Rates
- 0% on qualifying Free Zone income
- 9% standard rate on taxable income above the threshold
- 0% for small businesses meeting specific criteria
Exempt Entities
Entities exempt from Corporate Tax (subject to conditions):
- Government and government-controlled entities
- Extractive and non-extractive resource businesses
- Qualifying investment funds
- Public benefit entities
- Pension and social security funds
- Others as specified by Cabinet decisions
Free Zone Applicability
Free Zone entities qualify for 0% Corporate Tax if they:
- Maintain substantial UAE activities
- Earn qualifying income
- Comply with transfer pricing rules
- Meet MoF conditions
Key Considerations
- Assess the impact of Corporate Tax on business operations
- Prepare for compliance and reporting obligations
- Maintain thorough tax documentation
Implementation of OECD BEPS Pillar 2 provisions in UAE
The UAE has issued Cabinet Decision 142 of 2024 to implement imposition of Top-Up Tax on Multinational Enterprises (‘MNE’) in UAE to align itself with the OECD’s Pillar 2 framework to introduce a Global Minimum Tax (‘GMT’) of 15% on MNEs. Further, in addition to the said Decision, certain Frequently Asked Questions (‘FAQs’) are also issued subsequent to the issue of decisions.
As per the said framework, MNE groups are subjected to a minimum Effective Rate of Tax of 15% by the respective jurisdiction which has adopted the said provisions.
UAE has currently adopted only the Domestic Minimum Top Up Tax (DMTT) rules for the purpose of imposing the top-up taxes.
Accordingly, for the MNE groups to which the aforesaid decision will be applicable, it is very crucial to analyze the impact and implications along with the interplay of domestic tax regulations as it may also impact the exemptions/reliefs/benefits available under the UAE Corporate Tax Law regulations.
Why Choose Crowe UAE
At Crowe UAE, we combine global expertise with local insights to help businesses navigate the complexities of Corporate Tax. Our team delivers proactive tax strategies, ensures regulatory compliance, and leverages innovative technology for efficient tax management. Partner with us to optimize your tax position, minimize risks, and drive sustainable growth
