Corporate Tax is a form of direct tax levied on the net income or profit of businesses. UAE has formally introduced the Corporate Tax Law via Federal Decree Law no.47 of 2022. Corporate Tax is imposed on annual Net profit exceeding AED 375,000.

Here is a brief overview of how the CT will be applied

According to the financial year starting date:

• If a company's Financial Year is starting from 1st January till 31st December, the first Tax Period would be from 1st January 2024 to 31st December 2024. Thus, the first Corporate Tax Return filing deadline will be on 30th September 2025 (i.e., within 9 months from the end of the Financial Year). 
• If a company's Financial Year starts from 1st June till 31st May, the first Tax Period would be from 1st June 2023 to 31st May 2024. In this case, the first Corporate Tax Return filing deadline will be on 28th February 2025 (i.e., within 9 months from the end of the Financial Year).

Who is subjected to a Corporate Tax

UAE CT will apply to local companies and other legal entities that are incorporated and managed in the country as per the commercial license; foreign legal entities, conducting business in the UAE on a regular basis.

It is worth noting that as per the Free Zone companies, the taxation policy is not yet entirely finalized. Companies and Branches registered in Free Zones are considered taxable under the Corporate Tax Law and are required to meet normal compliance obligations, including transfer pricing requirements. It is mentioned that Free Zone companies that conduct business with mainland corporations must pay corporate tax on the profits made from those relationships. Moreover, Free Zone companies will have to register and file a corporation tax return, regardless of the necessity to settle the tax. The previous incentives will be preserved, however, elect to alter the regulations in the future and maybe enact the fee. 

Which income will be taxable

If we are considering the UAE companies, including Free Zones, the international income will be taxable. The international income of a UAE freelancer will also be taxable. The legal entity’s international income, which conducts business in the country on a regular basis, will be taxable as well. 

Individuals, who do not hold residency in the country, and who conduct business with the UAE regularly, will be subjected to taxation of transactions, which are associated with the country. Individuals, receiving the source of income from the UAE, and individuals, who have the tax nexus will also be subjected to CT. 

Rate Of Corporate Tax

In case the taxpayer is a company on the Mainland:

• 0% for taxable income up to and including AED 375,000/annually
• 9% for taxable income exceeding AED 375,000/annually

In case the taxpayer is a company in the Free Zone:

• 0% on Qualifying Income (elaborated in Article 18 of the Federal Decree Law no.47 of 2022).
• 9% on taxable income that does not meet the Qualifying Income definition.

Who will be exempted from CT 

We covered companies subjected to CT, and now let’s consider the exempted legal entities: they are Mainland companies receiving a dividend from UAE Mainland/Free Zone; individuals, receiving personal income; individuals or legal entities, receiving dividends, other profits distributions, and capital gains from the sale of shares (domestic or foreign); oil extraction companies; and government entities. 

As for the CT, implementing it has always been the sole prerogative of the UAE, and although the country has introduced Economic Substance Regulation, to facilitate tax transparency, for the UAE to take the next step in adopting the CT, the country monitored and considered international developments. As a result of the analysis, the UAE has finally implemented the measure, which will modify the tax landscape, as one of the tools to generate revenue. Moreover, given that the CT system of four GCC countries is as follows: Qatar — 10%, Oman — 15%, Saudi Arabia — 20%, and Kuwait — 15%, the introduction of 9% in the UAE provides the country a competitive edge. 

If you would like to have advice or assistance with Corporate Income Tax compliance in the UAE, please contact us.

Marsel Shadmanov

Head of Corporate Services at Garant Business Consultancy DMCC

Phone +971 4 421 4335

Email info@garant.ae