The UAE’s ministry of finance on 31st January 2022, through a press release, announced that it will start imposing federal Corporate Taxes on profits from business entities within the territories starting June 1st, 2023. As stated by the ministry, this will be a move to help minimize the compliance burden imposed on UAE businesses. This will be the first time businesses will remit taxes on corporate profits after introducing the sales tax in 2018.
Businesses will be expected to remit 9 percent of their corporate profits as the country tries to catch up with other countries in modernizing the economy. The new Corporate Tax would cover all forms of business except natural resource extraction. The taxes will apply to corporate profits that will exceed AED 375000, meaning businesses with a smaller profit margin are still tax-free. These taxes would be used for investment and headquarters purposes whereby it will facilitate for free flow of trade, capital and financial services.
The information was confirmed by the Undersecretary of UAE’s finance ministry Younis Haji Al Khoori, stating, “With the introduction of Corporate Tax, the UAE reaffirms its commitment to meeting international standards for tax transparency and preventing harmful tax practices.”
No Tax for individual or family income
This tax only caters for business, meaning that individuals will not be taxed, whether from employment income, real estate, share dividends, or any form of remuneration on personal income that does not amount to business within the UAE borders.
The move comes after the move to switch weekends from Friday-Saturday to Saturday-Sunday to ensure that the economy is streamlined with other international business days.
Tax for compliant Free Zone business
It was further clarified that the UAE would continue to uphold the tax incentives for free zone businesses, but that does not mean that the taxes would not apply to them. The incentives of enjoying tax-free sales and other incentives would apply if they don’t conduct business in mainland UAE. The 5 would still be effective to free zone businesses within UAE.
Finally, the taxes do not affect foreign investors who don’t own or run businesses within the UAE. Also, the taxes will not include domestic or cross-border payments.
How we can help
Even with the introduction of the corporate law being pretty new to everyone, here at AM Audit, we are knowledgeable in matters of audit, accounting and taxes and we will be glad to guide your business through the new era. Our accounting services can help your business calculate its Corporate Tax as mandated by the Ministry of Finance. We understand it can be a challenging experience, and we are here to help you through the process.
