The UAE Ministry of Finance introduced a corporate tax on business profits in financial years starting on or after June 1, 2023. The Ministry also confirmed that there will be no tax on profits of up to AED 375,000, a move that will help small businesses. No corporate tax will apply to personal income from employment, real estate, and other investments, or any other income earned by individuals that do not arise from business or other forms of commercial activity, licensed or otherwise.
- Highlights of UAE Corporate Tax:
- Corporate tax will be applicable for financial years starting on or after June 1, 2023.
- Corporate tax rates are expected to be as follows:
- 0% for taxable income not exceeding AED 375,000
- 9% for taxable income exceeding AED 375,000
- A different tax rate for large multinationals (with consolidated turnover exceeding AED 3.15 billion) that meet specific criteria set with reference to the Global Anti-Base Erosion Model Rules (Pillar Two) of the OECD Erosion and Profit Shifting project
- The corporate tax regime will honor the tax incentives currently being offered to free zones. A clarification as to whether the passive income and sale of goods exclusions also apply to intergroup transactions is required.
- Corporate tax will not be levied on a foreign investor’s income from dividends, capital gains, interest, royalties, and other investment returns.
- The consultation document proposes the introduction of a transfer pricing regime in line with the internationally recognized “arm’s length” principle. The proposed transfer pricing regulations would be applicable for transactions between related parties and connected persons. Taxpayers to whom the transfer pricing provisions apply would be required to submit a disclosure containing information regarding their transactions with related parties and connected persons. Also, taxpayers would be required to prepare and maintain a master file and a local file if the transactions met the prescribed thresholds.
- Presently, a 0% withholding tax is proposed to apply to all types of domestic and cross-border payments. UAE businesses will not need to deduct taxes while making payments. Further, there will be no obligation to file withholding tax returns.
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