On 8th October 2021, the United Arab Emirates (“UAE”) (amongst 137 countries) agreed to implement the OECD’s Two-Pillar approach to reform its International Tax Framework and to implement a minimum Corporate Tax in UAE rate starting in 2023. Following this development, on 31 January 2022, the Ministry of Finance of the UAE announced the introduction of a Federal Corporate Tax regime on business profits effective for Financial Years starting on or after 1 June 2023.
Corporate Tax in UAE is a form of direct tax levied on the net income or profit of corporations and other businesses. Going forward, licensees operating in UAE will be required to assess the impact of the regulations on their business and undertake the necessary compliance. On this note, the UAE Tax Authorities have already stated that non-compliance will translate to crippling penalties.
Below are the corporate tax rate applicable
Free Zone (including financial free zones) businesses in UAE will be subject to Corporate Tax in UAE. However, it has been clarified that the Corporate Tax regime will 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 in mainland UAE. Businesses established in a free zone will be required to register and file a Corporate Tax Return and Accounting services.
Foreign entities and foreign individuals will be subject to Corporate Tax only if they conduct a trade or business in the UAE in an ongoing or regular manner.
Moreover, Corporate Tax in UAE will generally not be levied on a foreign investor’s income derived from dividends, capital gains, interest, royalties, and other investment returns. Transfer Pricing rules and documentation requirements will now be aligned with the OECD Transfer Pricing Guidelines i.e., Master File and Local File. Documentation will require groups of companies to perform benchmarking searches to justify their pricing policies for inter-company transactions. We wait for further details/clarifications on potential exemptions for qualified intra-group transactions and other compliance requirements that may be introduced.
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