All your UAE corporate tax questions simply answered
In light of the recent news where the UAE Federal Decree-Law No.47 of 2022 (the Law) has very recently published about the UAE Corporate Tax, the following is an interview with Tyne Hugo, senior associate at BSA law offices.
Tyne has been practicing since 2012, specializing in corporate law and related DIFC litigation and arbitration. Tyne regularly issues legal advice and opinions on corporate tax, VAT, employment laws, insurance law, and damages claims.
Economy Middle East asked:
What is the rate?
This is set by Article 3 of the Law. All income subject to tax is known as taxable income (Taxable Income). Taxable Income is generally the net profit of businesses with some exceptions and nuances.
As previously advised by the Federal Tax Authority (FTA), the Corporate Tax rate will be:
- 0% or on Taxable Income not exceeding an amount specified in a decision by Cabinet (Specified Amount); and
- 9% for any amount of Taxable Income over this Specified Amount
Further Corporate tax will be imposed at the following rates for a Qualifying Freezone Person (discussed below) at:
- 0% on Qualifying Income
- 9% on Taxable Income that is not included as Qualifying Income or otherwise specified by the Minister.
What is the amount specified after which tax will become applicable?
Whilst the Law itself does not clarify what the Specified Amount is, the current indication is that it will be an annual amount of AED375,000.
Accordingly, should a business’s Taxable Income exceed the amount of AED375,000 annually, it will be liable to pay 9% Corporate Tax on the portion of the amount that exceeds AED375,000.
For example, should a person’s Taxable Income amount to AED675,000 over 12 months, they will pay 0% on the first AED375000, and 9% on the remaining AED300,000, therefore, paying a total tax of AED27,000.
Who is liable to pay tax?
Both Companies and Natural Persons (individuals) who run businesses will be liable to pay Corporate Tax.
This will include:
- UAE companies incorporated or managed/controlled within the UAE including Freezones.
- Non-resident companies (foreign companies) that have a permanent establishment within the UAE or that are managed/controlled from within the UAE.
- Any Natural Persons (individuals) who conduct a Business or Business Activity in the State.
- Any other person that may be determined by the Minister.
Who is exempt from paying Corporate Tax?
There are a few exemptions and these are governed by Article 4 of the Law, as expanded upon by Articles 5—10 of the Law.
- Government entities.
- Government Controlled entities.
- Businesses engaged in the extraction and exploitation of UAE natural resources that meet the conditions of Article 7 of the Law.
- Persons engaged in a Non-Extractive Natural Resources
- A business that meets the conditions of Article 8 of the Law.
- A qualifying Public Benefit Entity (Charities) under Article 9 of the Law
- A qualifying Investment Fund under Article 10 of the Law.
- A public pension or social security fund, or a private pension or social security fund that is subject to regulatory oversight of the competent authority in the State and that meets any other conditions that may be prescribed by the Minister.
- A juridical person incorporated in the State that is wholly owned and controlled by an Exempt Person that meets the required conditions specified under paragraphs (a), (b), (f), and (g) of Clause 1 of Article 4 of the Law and conducts any of the following:
a- Undertakes part or whole of the activity of the Exempt Person.
b- Is engaged exclusively in holding assets or investing funds for the benefit of the Exempt Person.
c- Only carries out activities that are ancillary to those carried out by the Exempt Person.
- Any other Person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister
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