UAE CORPORATE TAX and Guidelines

 The UAE has adopted a new corporate tax system, which is expected to significantly impact the tax and compliance obligations of many UAE companies. 

With the introduction of Corporate Income Tax (CIT) on business profits, companies will require the support of a tax consultancy and ERP software has to be ready with the updates. 

The new tax regime in the UAE will also bring about transfer pricing and documentation requirements in accordance with the OECD Transfer Pricing Guidelines. Capital gains and dividends will continue to be exempt from corporate tax, further strengthening the holding company structure. Companies may opt for group taxation or be taxed at a group level, and intercompany losses may be included in the calculation of taxable profits.

The Ministry of Finance has announced a federal corporate tax on business profits, effective for financial years starting on or after June 1, 2023. The tax rates for business income are as follows:

•     9% corporate tax rate for taxable income above AED 375,000
•     0% effective tax rate for taxable income up to AED 375,000 

Key features: UAE Corporate Income Tax

Overall, the new UAE Corporate Tax system is set to bring about changes for companies in the country. Frontline Information Technology is available to support businesses navigate the changes with our ERP and ensure compliance with the new tax requirements.

In the UAE, individuals will not face corporate tax on their employment income, real estate earnings, investment in shares, or other personal income related to a trade or business in the country. Foreign investors who do not conduct business in the UAE will also be exempt from corporate tax and business taxes. The corporate tax will be imposed on the adjusted net profit of a business as determined by its accounting records. Free Zone businesses that meet all necessary requirements may still benefit from corporate tax incentives. However, the extraction of natural resources will still be subject to Emirates-level corporate taxation.

Additionally, there will be no withholding tax on domestic or cross-border payments. Capital gains and dividends received by a UAE business from its qualifying shareholdings, as well as qualifying intragroup transactions and restructurings, will also be exempt from corporate tax.

Foreign tax may be credited against any UAE corporate tax liability. This means that businesses will only be taxed in the UAE on the portion of their profits that exceeds their foreign tax obligation.

Tax exemptions -UAE Corporate Tax

The following types of income are generally exempt from income tax in the UAE:

•     The dividend income earned by a UAE company from its qualifying shareholdings (as defined in the law)
•     Capital gains
•     Profits from group reorganization
•     Profits from Intra-group transactions

Additionally, there will be no UAE withholding tax imposed on domestic or cross-border payments.

The law will likely include a participation exemption or similar principles commonly found in international markets. As a result, businesses must determine if they meet the required conditions (if any) to take advantage of the exempt income scheme.

Companies will need adequate support from the Auditing and VAT consultancy firms along with their ERP Vendors. This is also the right time for the companies to switch to better solutions that can provide better insight into their business as well as into tax Auditing. 

We have crafted an industry-specific ERP solution that matches your exact requirement. When you get the right software like Horizon EBS- one of the best ERP Software, changing the existing processes isn’t as time-consuming or complicated as it looks. 

If you need to know more about Horizon EBS, you can write to us at sales@fit.ae or ring us at +971 4 353 3727