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The government of the United Arab Emirates will levy corporate income tax of 9% as of June 1, 2023
For the first time in history, the United Arab Emirates will levy corporate income tax and residents, who earn more than 375,000 dirhams a year in profits (about $100,000). According to the authorities, this measure is adopted to support new, small and medium-sized businesses.
The new tax rate has received strong criticism in the offshore world. For many years, the UAE attracted companies from all over the world, thanks to its position as a tax-free hub. However, the government argues that this is one of the lowest corporate tax rates in the world. For example, the new tax rate is similar to that of Gibraltar and Montenegro. But it is below that of Ireland (12.5%).
The tax burden will be based only on profits and not on the total turnover of the person or company. An important detail is that this tax will not be applied on those earning salaries above 375,000 dirhams (about $100,000 at the current exchange rate).
In addition, the new corporate tax will also not affect the income of individuals from savings programs, investments, bank deposits or foreign exchange gains. The UAE will levy a corporate and personal income tax on profits derived from activities such as the sale or lease of real estate in the country.
Non-residents of the UAE will also have to pay corporate income tax, provided they have a business in the country. They will also have to pay on the income they obtain from the provision of services and the sale of goods within the Arab country.
Who are exempted from paying corporate income tax?
Profits earned by non-residents from the operations of ships and aircraft, in the international space, will not be subject to the tax. Foreign investors not doing business in the country will also not pay the tax.
Other entities that will not be subject to corporate income tax are free zone entities. To receive this exemption they will have to comply with the conditions stated in the Executive Regulations of the UAE Corporate Tax Law.
In addition, companies engaged in natural resource extraction are also exempted from paying corporate income tax; however, they must still pay other taxes set by the country.
With the entry into force of the new corporate tax, individuals and companies registered in the UAE will be required to keep accounting records for a period of seven years.
From June 1, the United Arab Emirates will levy corporate income tax and the annual return will have to be completed within a maximum of nine months after the end of the tax period.
