UAE Corporate Income Tax Applicable From 1st June 2023

UAE Corporate TaxCampaign2023-05-22T13:43:00+00:00

UAE introduces Corporate Tax

The UAE’s Ministry of Finance made a groundbreaking announcement of implementing Corporate Tax in the region, effective financial years from or after 1 June 2023. The UAE has undertaken this action in its attempts to adhere to global standards and to align with OECD’s Global Minimum Tax Proposal under Pillar 2.

On 9 December 2022, the UAE Federal Tax Authority (FTA) released the final version of the UAE Corporate Tax (CT) law (hereinafter referred to as the law) through Federal Decree Law No. 47 of 2022. The law is largely based on the public consultation document issued earlier during the year 2022. However, it also contains certain new provisions which inter-alia include General Anti Abuse Rules, Small Business Relief, detailed definition of UAE sourced income, etc.

Businesses based in UAE would need to be geared up to adapt to these new changes. The companies need to evaluate the applicability of the provisions, align structure to make it tax efficient in UAE, and align policies for related party transactions.

Scope and Applicability

The UAE has introduced Corporate Tax to all businesses and commercial activities that are operational within the seven emirates.

UAE CT Tax Rates

UAE’s Corporate Tax has the following rates for all annual taxable profits:

Income slab	Rate of tax
Taxable Income =< AED 375000	0% (A)
Taxable Income > AED 375000	9% (B)
Total tax liability	A+B

Transfer Pricing Rules

The implementation of the UAE Corporate Tax will trigger the Transfer Pricing rule under the OECD. The companies need to comply with Transfer Pricing rules and maintain adequate documentation, as these rules will be mandatory and shall be applicable to domestic transactions.

Transfer Pricing will play a crucial role as inter-company and intra-group transactions will be impacted and will be undertaken at arm’s length. Companies will need to evaluate their current processes and assess the impact on transactions.