Corporate Tax Services in the UAE

Introduction to the Federal Corporate Tax Law in the UAE

The enactment of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, commonly known as the “Corporate Tax Law,” marked a significant milestone in the United Arab Emirates (UAE). Issued by His Highness Sheikh Mohamed bin Zayed Al Nahyan, the UAE President, on October 3, 2022, this legislation provides the foundational framework for the introduction and enforcement of Federal Corporate Tax (Corporate Tax) in the UAE. Effective for financial years commencing on or after June 1, 2023, the Corporate Tax aims to propel the UAE towards its strategic goals, fostering development and transformation.

The implementation of Corporate Tax positions the UAE as a global business hub, boasting a competitive tax regime aligned with international standards. Coupled with the nation’s extensive network of double tax treaties, this move solidifies the UAE’s standing as a premier destination for business and investment. Drawing from global best practices and incorporating universally accepted principles, the UAE Corporate Tax regime ensures transparency, ease of understanding, and clarity in its implications.

Understanding Corporate Tax

Corporate Tax, also referred to as Corporate Income Tax or Business Profits Tax in various jurisdictions, is a direct tax imposed on the net income of corporations and businesses.

Entities Subject to Corporate Tax

Corporate Tax is applicable to a broad spectrum of entities termed “Taxable Persons,” including:

  • UAE-based companies and juridical persons incorporated or effectively managed and controlled in the UAE.
  • Natural persons (individuals) conducting business or business activities in the UAE, as specified in a forthcoming Cabinet Decision.
  • Non-resident juridical persons (foreign legal entities) with a Permanent Establishment in the UAE.

Entities established in UAE Free Zones fall under the scope of Corporate Tax as “Taxable Persons.” However, those meeting the criteria for Qualifying Free Zone Persons can benefit from a 0% Corporate Tax rate on their Qualifying Income.

Non-resident persons without a Permanent Establishment in the UAE or earning UAE sourced income unrelated to their Permanent Establishment may be subject to a 0% Withholding Tax, collected at the source by the payer.

Exemptions from Corporate Tax

Certain entities, classified as Exempt Persons, are exempt from Corporate Tax due to their significant contribution to the UAE’s social and economic fabric. This category includes Government Entities, Government Controlled Entities specified in a Cabinet Decision, Extractive Businesses, and Non-Extractive Natural Resource Businesses. Exempt Persons may also be relieved from registration, filing, and other compliance obligations unless engaging in Corporate Taxable activities.

Taxation Basis for Corporate Tax

The Corporate Tax Law aligns with international tax norms by taxing income on both a residence and source basis. The classification of a Taxable Person determines the applicable basis:

  • A Resident Person is taxed on income from both domestic and foreign sources (residence basis).
  • A Non-Resident Person is taxed solely on income derived from UAE sources (source basis).

Residency for Corporate Tax purposes relies on specific factors outlined in the Corporate Tax Law, diverging from the traditional notions of residence or domicile. Failure to meet the conditions for residency or non-residency excludes entities from Taxable Person status, thereby exempting them from Corporate Tax obligations.