Who can register for the Corporate Tax Now?

According to the authority’s explanation, early registration for corporate tax will grant companies and businesses ample time to meet their legal obligations. At present, only individual legal entities can undergo the registration process. If these entities desire to form a corporate tax group, they must initially register individually. Later on, they will have the chance to apply for group formation.

What is Corporate Tax?

The United Arab Emirates (UAE) issued the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, also known as the “Corporate Tax Law,” on December 9, 2022. This law establishes the framework for the implementation of a Federal Corporate Tax (Corporate Tax) in the UAE, which becomes effective for financial years starting on or after June 1, 2023.

The introduction of Corporate Tax aims to support the UAE in achieving its strategic goals and promoting its development and transformation. By implementing a competitive Corporate Tax regime that aligns with international standards and leveraging the UAE’s extensive network of double tax treaties, the country strengthens its position as a leading destination for businesses and investments.

Considering the UAE’s status as a global business hub and a prominent financial center, the Corporate Tax regime draws from best practices worldwide and incorporates internationally recognized principles. This ensures that the UAE Corporate Tax system is transparent, easily comprehensible, and clearly defines its implications.

Who must File for Corporate Tax?

Corporate tax applies to the following types of entities:

1. 1. UAE Companies and Juridical Persons: This includes businesses and legal entities that are incorporated or effectively managed and controlled within the UAE.
2. 2. Individuals Conducting Business: Natural persons (individuals) who are engaged in business or business activities in the UAE, as determined by a forthcoming Cabinet Decision.
3. 3. Non-Resident Juridical Persons with Permanent Establishment: Foreign legal entities that have a permanent establishment in the UAE, as defined in Section 8 of the Corporate Tax Law.

Juridical persons established in a UAE Free Zone are also considered “Taxable Persons” for Corporate Tax purposes. They are required to comply with the regulations outlined in the Corporate Tax Law. However, a Free Zone Person that qualifies as a Qualifying Free Zone Person can benefit from a Corporate Tax rate of 0% on their Qualifying Income. The specific conditions for qualifying as a Qualifying Free Zone Person can be found in Section 14 of the Corporate Tax Law.

Non-resident persons who do not have a Permanent Establishment in the UAE or earn UAE sourced income unrelated to their Permanent Establishment may be subject to Withholding Tax. Withholding Tax is a form of Corporate Tax collected at the source by the payer on behalf of the income recipient. The rate for Withholding Tax in this case is 0%. Withholding taxes are commonly applied in various tax systems and typically affect cross-border payments, such as dividends, interest, royalties, and other types of income.

Corporate Tax Filing dates?

Small Business Relief Scheme

1. 1. Small Business Relief: Resident individuals who are subject to taxation can claim Small Business Relief if their revenue in the current tax period and previous tax periods is below AED3 million for each period. However, once their revenue exceeds AED3 million in any tax period, they are no longer eligible for Small Business Relief.
2. 2. Applicable Period: The AED3 million revenue threshold applies to tax periods starting from 1 June 2023 and continues to apply until the end of subsequent tax periods on or before 31 December 2026.
3. 3. Revenue Calculation: Revenue is determined based on the accounting standards accepted in the UAE.
4. 4. Exclusions: Small Business Relief is not available to Qualifying Free Zone Persons or members of Multinational Enterprises Groups (MNE Groups). MNE Groups are companies operating in multiple countries with consolidated group revenues exceeding AED3.15 billion.
5. 5. Carry Forward of Losses: If businesses choose not to apply for Small Business Relief in certain tax periods, they can carry forward any incurred Tax Losses and disallowed Net Interest Expenditure for future tax periods where Small Business Relief is not elected.
6. 6. Artificial Separation of Business:The Ministerial Decision addresses situations where the Federal Tax Authority (FTA) determines that taxable individuals have artificially separated their business or business activity. If the total revenue of the entire business or activity exceeds AED3 million in any tax period and those individuals have elected to apply for Small Business Relief, this will be considered an arrangement to gain a tax advantage and may be subject to the anti-abuse rules of the Corporate Tax Law.

Who is exempt from Corporate Tax?

1. 1. Salaries and Personal Incomes: Corporate tax will not be applicable to salaries or other personal incomes earned from employment, as well as interest and income from bank deposits or savings programs.
2. 2. Real Estate Investments: Individuals’ personal real estate investments are not subject to the new tax.
3. 3. Government Entities: Government entities are exempt from corporate tax.
4. 4. Government-Controlled Entities: Entities controlled by the government are also exempt from corporate tax.
5. 5. Extractive and Non-Extractive Natural Resource Businesses: Individuals engaged in extractive or non-extractive natural resource businesses are exempt from the tax.
6. 6. Qualifying Public Benefit Entities: Public benefit entities that meet specific criteria for qualification are exempt from the corporate tax.
7. 7. Qualifying Investment Funds: Certain investment funds that meet the qualifying criteria are exempt from the tax.
8. 8. Public and Private Pension or Social Security Funds: Pension or social security funds that are subject to regulatory oversight by the competent state authority are exempt from the tax.
9. 9. Juridical Person Wholly Owned and Controlled by an Exempt Person: A juridical person incorporated in the UAE that is wholly owned and controlled by an exempt person may be exempt if it engages in specific activities or functions ancillary to the exempt person.
10. 10. Any Other Exempt Persons: The Cabinet has the authority to determine and designate other entities or persons as exempt from the corporate tax through a decision issued at the suggestion of the Minister.