Understanding the New Tax Law in the UAE: What You Need to Know
The landscape of taxation in the United Arab Emirates (UAE) has undergone significant changes with the introduction of Federal Decree Law No. 47 of 2022 on the Taxation of Corporations and Businesses. This comprehensive legislation aims to streamline taxation practices and ensure a fair and transparent system. Here's a breakdown of the key aspects of the new tax law and its implications.
Corporate Tax Rates in Free Zones differ based on the nature of income
For Qualifying Income: Companies operating within Free Zones enjoy a 0% tax rate on revenue that aligns with the objectives of the zone and contributes to strategic initiatives.
For Non-Qualifying Income: Earnings generated outside the scope of Free Zones are subject to a 9% corporate tax rate, ensuring a balanced revenue structure.
In Mainland areas:
Income up to AED 375,000 is exempt from taxation, providing support for small businesses.
Income surpassing AED 375,000 incurs a 9% tax rate, ensuring equitable contributions to revenue.
Example timeline for UAE corporate tax filings.
Scope of Application
The new tax law outlines the categories of individuals and entities subject to corporate tax in the UAE. These include residents and non-residents:
Residents: Individuals or entities falling under the following criteria are subject to tax:
- Juridical persons incorporated, established, or recognized by UAE legislation or Free Zone authorities.
- Juridical persons incorporated, established, or recognized by foreign jurisdictions but managed from the UAE.
- Natural persons conducting business activities within the UAE.
- Individuals or entities specified in a Cabinet decision.
Non-residents: Tax obligations apply to non-residents under the following conditions:
- Having a permanent establishment in the UAE.
- Deriving income from UAE sources.
- Meeting other criteria specified by Cabinet decisions.
Corporate Tax Implementation
The provisions of the new tax law are set to take effect from June 1, 2023. Businesses falling under its purview will be required to pay taxes based on their financial year commencing on or after this date. Notably, businesses with an income of AED 375,000 or below are exempt from taxation, while those earning above this threshold are subject to a 9% tax rate. Specific tax rates for large multinationals will be determined under OECD's Pillar 2 guidelines. The Federal Tax Authority (FTA) will oversee the administration of the corporate tax regime, ensuring compliance and enforcement.
Exemptions and Non-taxable Incomes
Certain entities and income sources are exempt from corporate taxation, including:
- Government entities or government-controlled entities.
- Qualifying public benefit entities, investment funds, and social security funds.
- Specific types of income such as dividends earned by residents, foreign public establishment income, and income from international transportation services.
Key Features
The new tax law introduces several notable features, including:
- Adherence to the arm's length principle in transactions with related parties.
- Provision for the formation of tax groups, subject to specified conditions.
- Regulations concerning no gain and no loss transfers, tax registration, filing procedures, and refunds.
Taxation in Free Zones
Companies operating within Free Zones will be treated as Qualifying Free Zone Persons. By fulfilling the requirements outlined in the law, these entities can benefit from a 0% corporate tax rate.
The new tax law in the UAE brings significant changes to the corporate taxation landscape, aiming to enhance transparency, fairness, and compliance. Understanding its scope, implementation, exemptions, and key features is essential for businesses and individuals operating within the UAE's jurisdiction.
Are you navigating the complexities of the new tax law in the UAE? Unsure about how it affects your business? Don't worry, we've got you covered!
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