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UAE set to impose corporation tax in 2023

The United Arab Emirates (UAE) has announced plans to impose a new 9% federal corporation tax from 1 June 2023.

The Ministry of Finance said the new tax, the first of its kind in the country, will be applied on the adjusted accounting net profits of a business above 375,000 AED (US$102,000), and would “be amongst the most competitive in the world.”

The new corporate tax will not be applicable on income from personal employment or investments that do not arise from a commercial activity. Firms involved in the extraction of natural resources will also be exempt from the new levy and UAE firms will be exempt from paying tax on capital gains and dividends received from their qualifying shareholdings. Businesses will also be able to credit foreign taxes paid against the amount of UAE corporation tax they are charged.

The Ministry of Finance said the corporate tax regime would continue to honour the corporate tax incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE. The UAE will also not impose withholding taxes on domestic and cross border payments, or subject foreign investors to corporation tax if they do not conduct business in the UAE.

Younis Haji Al Khoori, undersecretary of the Ministry of Finance, said: “As a leading jurisdiction for innovation and investment, the UAE plays a pivotal role in helping businesses grow, locally and globally. The certainty of a competitive and best in class corporate tax regime, together with the UAE’s extensive double tax treaty network, will cement the UAE’s position as a world-leading hub for business and investment.”

Al Khoori added: "With the introduction of corporation tax, the UAE reaffirms its commitment to meeting international standards for tax transparency and preventing harmful tax practices. The regime will pave the way for the UAE to address the challenges arising from the digitalisation of the global economy and the other remaining Base Erosion and Profit Shifting (BEPS) concerns and execute its support for the introduction of a global minimum tax rate by applying a different corporate tax rate to large multinationals that meet specific criteria set with reference to the above initiative."

The Ministry of Finance described the new tax regime’s loss utilisation rules as “generous” and said it would allow UAE groups to be “taxed as a single entity or to apply group relief in respect of losses and intragroup transactions and restructurings”.

Businesses will only need to file one corporate tax return each financial year and will not be required to make advance tax payments or prepare provisional tax returns. Transfer pricing and documentation requirements will apply to UAE businesses with reference to the OECD Transfer Pricing Guidelines.

Alexandra Aikman, corporate law expert at Pinsent Masons, said: “This move is a historic and positive step which will bring the UAE in line with international standards and expectations for tax transparency, whilst ensuing that the region remains a hub for doing business.”

The Ministry of Finance is expected to publish further information on the new tax regime in the summer of 2022, to help businesses prepare for the change in the law.

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