The United Arab Emirates’ Ministry of Finance recently issued a Corporate Tax Law which will be implemented by the Federal Tax Authority starting from or after the 1st of June 2023. The UAE Corporate Tax Law issued is comprehensive and includes many articles pertaining to different UAE residents and establishments which is why many individuals are left with many questions as to how it can impact them and their business.
Here at Am Audit, we understand the importance of keeping all your taxes and company paperwork up to date, which is why we make sure to cover all aspects and articles related to UAE Corporate Tax. Now, without any further delay, in this post we will cover how Corporate Tax will apply to State-Sourced income and what exactly is UAE-sourced income.
What is State-Sourced Income?
State-sourced income or UAE sourced income refers to any taxable income that was derived from the UAE, a UAE Permanent Establishment, a UAE resident, or business assets and activities in the UAE. So, state sourced income can include but is not limited to:
- Products and/or services sold in the UAE.
- Contractual Agreements performed and benefitted from in the UAE.
- Income earned from Real-estate Investment on the Corporate level.
- Interest (Only if the loan was issued to a UAE resident/ government entity or was secured using any property within the UAE).
Keep in mind, Corporate Tax does not apply to individuals. For example, if an individual is self-employed, he wouldn’t be liable for Corporate Tax UNLESS his activity can be considered as business activity or taxable business activity.
What is a Permanent Establishment?
A Permanent Establishment refers to a fixed place within the UAE where taxable business activity is being held. The term “Permanent Establishment” was based on Article Corporate Tax of the OECD Model Tax Convention on Income and Capital and its goal in the Corporate Tax Law is to decide whether a foreign individual or entity has established enough presence in the UAE so that their business or company can be considered subject to Corporate Tax under Federal Law.
UAE Corporate Tax Impact on State-Sourced Income
The UAE Corporate Tax Law treats state-sourced income as taxable if the said income exceeds AED 375,000 at a rate of 9%. Taxable income refers to the profit of a company or business establishment. Federal Corporate Tax applies to residents as well as non-residents who have a Permanent Establishment in the UAE or have State-Sourced Income.
However, non-residents are subject to Corporate Tax on Income that is attributed to their Permanent Establishment. Additionally, UAE Corporate Tax can be reduced through Foreign Tax Credit or cases in which a Corporate Tax has been paid in a foreign country.
Why Am Audit?
Why settle for less when you can settle for the best?
At Am Audit we understand how stressful starting and managing a business can be, let alone having to stress about sorting your paperwork or filing your taxes. So, let trained professionals do the paperwork and sleep soundly at night knowing that all your company’s paperwork is immaculate. Focus only on growing your business and choose from AM Audit’s services including Auditing, Accounting, Consulting, and Corporate Tax Services.
