The UAE Ministry of Finance implemented Corporate Tax (CT), a direct tax imposed on the net income of corporations and other businesses, on December 9, 2022, with effect from June 1, 2023. The CT is also referred to as “Business Profits Tax” or “Corporate Income Tax” in other jurisdictions.
The implementation of the Federal CT regime is intended to assist the UAE in achieving its strategic goals and accelerating its development and transformation. Together with the UAE’s extensive network of DTAA, the certainty of a competitive CT regime aims to adhere to international standards, cementing the UAE’s position as a leading jurisdiction for business and investment. This will also encourage financial discipline in the business world, resulting in accurate financial records. The introduction of Corporate Tax stems from the UAE’s commitment to meeting international tax transparency standards while protecting start-ups and small businesses in the UAE.
The MOF announced that the UAE is introducing Federal CT on business profits effective for the financial year starting on or after 1st June 2023. CT will be levied on a company’s annual taxable income as follows:
The UAE implemented a federal tax structure that applies to all business operations and commercial activity conducted throughout the emirates. Let us now examine the scope of corporate taxation to which the CT will apply:
Below category of Persons are exempted from CT:
CT will not apply to:
According to the rules of each Free Zone, the UAE intends to uphold its commitment to businesses registered in Free Zones that do not conduct business with the mainland and that will benefit from corporate tax benefits. All free zones are required to submit an annual CIT return. The following requirements must be met by a Free Zone Person (FZP) in order to qualify as one:
A Qualified Free Zone Person may be required to comply with extra requirements set forth by the Minister. The usual rates of corporate tax will apply to the start of the Tax Period in which the Qualified Free Zone Person fails to satisfy any of the qualifications are subject to the regular corporate tax regime.
With the introduction of UAE Corporate tax effective from June 2023, the UAE is expected to attract international firms. The concept that taxing corporate earnings will boost investment and draw in global firms may sound contradictory. However, with the UAE’s competitive tax policy, it is expected to rise to the top of multinational corporations’ lists of “transparent and dynamic” locations.
The introduction of corporate tax would have an impact on the corporate mergers and acquisitions market. Investors will be delighted as qualified ownership entitles them to tax-free dividends and capital gains. Nonetheless, increased due diligence efforts may be required to ensure that the inherited corporate tax responsibilities are properly addressed. As the CT Law is established and will be enforced soon, businesses should evaluate their current structures and activities as soon as possible in order to implement the most robust operational frameworks and strategies.
The implementation of a corporate tax is just one example of how rapidly the UAE is developing and expanding. The administration’s goal is to rebuild the country’s economy by weaning it off of its reliance on oil and gas, and it is attempting to position itself as a digital and technological powerhouse.
The UAE’s intention to change its corporate structure and adhere to international regulations can be seen in the first major overhaul of labour law, the shift of the workweek from Sunday to Thursday to Monday to Friday, and the removal of the requirement that a UAE national own at least 51 percent of a UAE enterprise. The UAE will continue to attract highly skilled professionals because employment income is tax-free, and no tax is levied on income or profits derived from personal holdings. Furthermore, these changes have raised the cost of living and doing business.
All Taxable Persons (including Free Zone Persons) and those exempt persons who are required to register for corporate tax must register for Corporate Tax and obtain a Corporate Tax Registration Number.
During each Tax Period, Taxable Persons are expected to submit a Corporate Tax return within nine months after the conclusion of the applicable period. The same deadline would apply for the payment of any Corporate Tax due in respect of the Tax Period for which a return is filed.
The majority of UAE firms’ existing taxes and compliance costs are expected to change significantly with the implementation of Corporate Tax in the UAE. The new tax system must be followed by all entities, which triggers a thorough examination of the tax implications and the necessary changes to the corporate structure, operational model(s), finance/tax operations, reporting systems, legal agreements, and transfer pricing rules.
At Alankit Management Consultancy, our specialised team provide the necessary support right from the Registration Process up to the Finalisation of Accounts and finally Computation & Filing of Corporate Tax Returns, and also responds to your queries regarding Corporate Tax Implementation. Feel free to contact us at
Individuals known as natural persons in the UAE Corporate Tax regime are subject to UAE CT if they engage in business activities that fall within the CT scope. An individual engaged in business is subject to UAE CT if the activity necessitates the acquisition of a commercial licence or equivalent permit from the relevant competent authority.
Employment and other personal income earned by national and foreign individuals, such as dividends, rental receipts from UAE, real estate investments, and other investment income, are not subject to the scope of the proposed UAE CT regime.
The Corporate Tax Framework distinguishes between unincorporated and incorporated partnerships.
Non-incorporated partnerships are considered “transparent” for UAE CT purposes. This means that an unincorporated partnership is not subject to UAE CT on its own. The revenue generated by the partnership’s operations, on the other hand, is subject to UAE CT.
Incorporated partnerships include limited liability partnerships, partnerships with shares, and other types of partnerships that do not have unlimited liability for the partnership’s debts or the conduct of the other partners. These partnerships, like corporations, are subject to CT.
In terms of the UAE CT treatment of unrealised accounting gains and losses, a company has the following options:
Option 1: For UAE CT purposes, the taxpayer has the option to recognise gains and losses for all assets and liabilities on a “realisation basis,” which means that any unrealised profits would not be taxable (and similarly, any unrealised losses would not be deductible) until they are realised;
Option 2: For UAE CT purposes, the taxpayer can elect to recognise gains and losses on a ‘Realization Basis’ for assets and liabilities held on capital account only – that is, only unrealised gains and losses in respect of assets and liabilities held on capital account are taxable or deductible until they are realised. Unrealised profits and losses from assets and liabilities held in revenue accounts, on the other hand, would continue to be included in taxable income on a current basis.
Unless a UAE firm elects to claim an exemption for its international branch revenues, the income of its foreign branches or foreign permanent establishments will be included in its UAE “head office’s” taxable income and UAE CT report. This exemption applies to profits from overseas branches that are subject to taxation in the foreign jurisdiction.
In order to prevent double taxation, the UAE CT regime contains provisions that permit credit for taxes paid in another country against the UAE CT liability on foreign-sourced income that is not otherwise exempt. They are referred to as “Foreign Tax Credits.”
The lowest of the following will constitute the maximum Foreign Tax Credit:
No, the business cannot carry forward or back any unutilised Foreign Tax Credit to other tax periods. No refund mechanism is available for any unutilised Foreign Tax Credit.
Tax losses subject to certain conditions can be offset against the taxable income of future periods, up to a maximum of 75% of the taxable income in each of those future periods. Any further excess tax losses can be carried forward and used against the taxable income of future Tax Periods indefinitely.
The applicable laws and regulations will continue to govern the audit of financial statements by a qualified audit firm. However, in order to benefit from the UAE CT regime’s 0% CT rate, a Free Zone Person must have audited financial statements.
A company must keep financial and other records that explain the information contained in the CT return and other documents submitted to the FTA. Furthermore, some exempted individuals will be required to keep documents in order for the FTA to verify their exempt status.