In January 2022, The Ministry of Finance announced that the UAE government will be implementing Federal Corporate Tax (CT) on the net profit of businesses. The Corporate Tax in UAE will be effective from the 1st of June 2023. Corporate Tax or Corporate Income Tax or Business Profits Tax will be applicable on or after the 1st of June 2023 depending on the financial year followed by the businesses, and from there on, all over the country, every business apart from the exempted group will be subjected to CT. Corporate tax is a type of direct tax imposed on net income. At present, the UAE has recorded the lowest tax rate of 9%compared to other GCC countries. On recalling the G7 countries' meeting in 2021, the Gulf countries entered into an agreement where a global minimum corporate tax return of 15% was introduced. The United Arab Emirates chose 9% over 15% to reduce its direct impact on entrepreneurs. Business entities are the ones subjected to this direct tax, while individuals' earning income in their personal capacity, which does not require a commercial license, is not taxable.
In the United Arab Emirates, corporate tax is applied as follows:
Corporate tax in UAE primarily aims at helping countries build a sustainable economy to enhance corporate governance and thus strengthen the economy of the nation. Through the introduction of corporate tax in the UAE, the government aims to strengthen the country's position as a leading global hub for businesses and investments. The corporate tax can accelerate the country's development and transformation in attaining its strategic objectives. The ultimate aim and the uttermost importance of the corporate tax in UAE is that through the implementation of this direct tax, the country reaffirms its commitment to meeting international standards for tax transparency and preventing injurious tax practices.
It is evident that even after the implementation of corporate tax, the UAE can easily retain its position in the global market as a competitive market to conduct business in. If we look into the corporate tax rates of other competitive countries, the UAE has the lowest corporate tax rates. For example, France has a tax rate of 26.5%, the United States of America has 21%, and India has 25% for a gross turnover up to 400cr and 30% above 400cr. The Gulf Cooperation Council countries have always attracted foreign investment due to their geographical locations and their favourable tax rates. We can also conclude that the United Arab Emirates is a better place for global investments as it has the lowest corporate income tax rate compared to other competitive countries and GCC countries.
Corporate tax in UAE will apply to:
The UAE Corporate taxes are exempt for the following entities:
CDA, Accounting services in dubai, has a team of experts in international tax standards who can provide the best tax guidance and activities related to corporate tax. Our in-depth understanding of tax laws applicable to every industrial sector helps in achieving the best tax resolutions. We make use of our experts’ knowledge of international and local tax laws to draw the best tax solutions. We perform with a vibrant approach, supporting our clients to plan and execute their tax procedures in a systematic and organized manner to achieve compliance with the applicable tax rules and regulations. If you are looking for the best corporate tax consultants in UAE, CDA will be the right choice for you. We provide you with excellent corporate tax services in UAE.
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The Federal Tax Authority (FTA) will be responsible for the administration, collection, and enforcement of the corporate tax.
The Ministry of Finance will remain the ‘Competent Authority’ for the purposes of bilateral and multilateral agreements and international exchange of information for tax purposes.
UAE Corporate tax will apply to every UAE business and Commercial Activity except for the businesses engaged in the extraction of Natural Resources.
OECD Base Erosion and Profit Shifting Project's Pillar Two's proposed worldwide minimum effective tax rate defines "Large" as a multinational firm with consolidated global revenues of more than EUR 750m. (c. AED 3.15 bn).
The investment in Real Estate by individuals in their personal capacity should not be subjected to CT provided that it is not required to obtain a commercial licence or permit to carry out such activity.
Businesses engaged in the extraction of natural resources will remain subject to Emirate Level Corporate Taxation and outside the scope of UAE CT
A company may use losses incurred (as of the UAE CT effective date) to reduce taxable income in succeeding financial quarters under the UAE CT regime.
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