United Arab Emirates
There is a growing trend of tax reforms in the Middle East region, and the United Arab Emirates (UAE) has implemented excise tax, value-added tax (VAT), and economic substance regulations in October 2017, January 2018, and April 2019, respectively. Country-by-country (CbC) reporting was also implemented in April 2019.
On 31 January 2022, the UAE Ministry of Finance (MoF) announced the introduction of a federal corporate tax (CT) in the United Arab Emirates that will be effective for financial years starting on or after 1 June 2023.
According to the announcement, the UAE CT regime will be based on international best practices, with a low / minimal compliance burden on businesses.
UAE CT will be applicable across all Emirates and will apply to all business and commercial activities alike, except for the extraction of natural resources, which will continue to be subject to Emirate level taxation.
UAE CT will be applicable at the following rates:
UAE CT rate
AED 0 - AED 375,000
Above AED 375,000
Free zone businesses will be within the scope of UAE CT and required to register and file a CT return, but will continue to benefit from CT holidays / 0% taxation if they comply with all regulatory requirements and do not conduct business with mainland UAE.
There will be a different tax rate for large multinationals that meet the criteria under ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project (i.e. that have consolidated global revenues above EUR 750m).
CT will be payable on the accounting net profit reported in the financial statements of the business, with minimal exceptions and adjustments. Tax losses incurred from the CT effective date can be carried forward to offset taxable income in future financial periods.
No UAE CT will apply to:
- Employment income, income from real estate, income from savings, investment returns and other income earned by individuals in their personal capacity that is not attributable to a UAE trade or business;
- Dividends, capital gains and other investment returns earned by foreign investors.
Exemption from UAE CT will be available for:
- Capital gains and dividends earned from qualifying shareholdings;
- Qualifying intra-group transactions and restructurings.
Domestic and cross border payments of interest, dividends, royalties and other payments will not attract a withholding tax in the UAE, and foreign tax credits will be available for taxation incurred by UAE businesses on income earned outside the UAE.
UAE CT will have to be filed electronically once for each financial period without a requirement for advance UAE CT payments on the basis of provisional tax returns.
UAE group companies can form a tax group and file a single tax return for the entire group, and transfer tax losses to other members of the group.
The UAE CT regime will have transfer pricing (TP) rules and documentation requirements in line with the OECD TP Guidelines.
The Federal Tax Authority will be responsible for the administration, collection, and enforcement of CT.
*Further details are expected by mid 2022.
Economic substance regulations
On 30 April 2019, the UAE Ministry of Finance issued economic substance regulations ('Regulations'), which were followed by the amended Regulations on 1 September 2020 introducing a requirement for certain juridical persons (persons with separate legal personality) and unincorporated partnerships that carry on a relevant activity in the United Arab Emirates ('UAE licensees') to have adequate 'economic presence' in the United Arab Emirates, relative to the activities they undertake.
The introduction of the Regulations in the United Arab Emirates brings it in line with other jurisdictions that have issued economic substance legislation and affirms the UAE’s commitment to addressing concerns around the shifting of profits derived from certain business activities to 'no or nominal tax jurisdictions' without corresponding local economic activities.
See Economic substance requirements in the Other issues section for more information.