UAE confirms major tax update

After publishing the approved cabinet decision on Corporate Tax it has confirmed:

• Corporate Tax in the UAE will begin on June 1
• Companies in the UAE will pay zero per cent on taxable income below AED375,000
• Taxable income above AED375,000 will be subject to a nine per cent corporate tax

UAE tax confirmed

The Ministry of Finance (MoF) published the approved Cabinet Decision 116 of 2022 on the Applicable Taxable Income Threshold for Corporate Tax.

The Decision follows the issuance of Federal Decree Law on the Taxation of Corporations and Business (the “Corporate Tax Law”) in December 2022.

It aligns with what the Ministry announced earlier and ensures that the UAE’s Corporate Tax regime is among the most competitive in the world and strengthening the country’s position as a global financial and business hub.

The Decision states a zero percent rate will apply to taxable income that does not exceed AED375,000 during the same tax period regardless of the number of businesses or business activities the taxable person is engaged in during that period.

Younis Haji Al Khoori, Undersecretary of MoF, said, “The Cabinet Decision on Applicable Taxable Income Threshold for Corporate Tax confirms the tax rates that were previously announced.

“The rates and the threshold have been carefully decided and reflect the fairness and competitiveness of the UAE’s Corporate Tax regime.

“A zero percent threshold for taxable profits up to and including AED375,000 is a significant indication of our ongoing support for start-ups and small businesses in recognition of their vital contribution to the UAE’s economic growth.

“In addition, the nine percent rate for taxable income above that threshold is highly competitive compared to other jurisdictions and provides taxpayers with certainty, thus cementing the UAE as a leading jurisdiction for business and investment.”

The Cabinet Decision defines a “Business” as “an activity conducted regularly, on an ongoing and independent basis by any Person and in any location, such as industrial, commercial, agricultural, vocational, professional, service or excavation activities or any other activity related to the use of tangible or intangible properties”.

It defines a “Business activity” as “any transaction or activity, or series of transactions or series of activities conducted by any natural or juridical person in the course of its business.”

“It represents a further step in the UAE’s path to alignment with international standards and commitments and will guarantee stable revenue streams to invest in strategic public initiatives,” Marco De Leo, managing partner of BonelliErede’s Dubai Office and Francesco Parlatore, tax managing associate BonelliErede told Arabian Business.

“For all companies (regardless of size, business type and location), the CIT will entail additional administrative/compliance burdens, starting with registration (for some categories of companies, pre-registration by invitation through the recently launched EmaraTax platform for digital tax services), drafting reliable financial statements, and filing tax returns,” De Leo and Parlatore said.

“However, as the CIT is based on global best practices and internationally known and accepted principles, it will be easily understood and smoothly applied,” they added.

For individuals however, there will be no changes. They will continue to be exempt from income tax as long as they are not conducting categories of business, they explained in conclusion.

A copy of the Cabinet Decision on the Applicable Taxable Income Threshold for Corporate Tax can be found on the Ministry’s official website: www.mof.gov.ae