UAE Corporate Tax

United Arab Emirates (UAE) have announced the introduction of Corporate Income Tax on 31 January 2022. As a signatory to the Two Pillar package driven by the Organization for Economic Co-operation and Development (OECD), UAE has introduced the Corporate Tax (CT) in line with the Global Minimum Tax Proposal under Pillar 2.

Who is impacted?

Companies based in UAE 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, align policies for related party transactions, book-keeping, etc.

Applicability to foreign persons

Foreign entities and foreign individuals will be subject to CT only if they conduct a trade or business in the UAE in an ongoing or regular manner. Moreover, CT will generally not be levied on a foreign investor’s income derived from dividends, capital gains, interest, royalties and other investment returns.

Key Highlights

CT would apply to free zone businesses that do not comply with all regulatory requirements and conduct business with mainland UAE. Registration and filing requirements would also apply.

Carry forward of losses from CT effective date would be allowed. Group level tax set-off would be allowed subject to certain conditions.

UAE group of companies can form a tax group and select to be treated as a single taxable entity, subject to certain conditions.

No withholding tax on local or cross border payments.

Tax Credit would be allowed for foreign taxes paid on UAE taxable income.

Transfer pricing rules and documentation requirements would apply as per OECD Transfer Pricing Guidelines.

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Insights

We at Nexdigm are poised to assist businesses in UAE in aligning their policies, tax positions and structure as per the evolving tax landscape in the region. Our dynamic and experienced teams are well-suited to generate solutions that offer stability and help remain compliant.