The United Arab Emirates (UAE) is set to usher in a new era of taxation with the introduction of the Corporate Tax Law, as outlined in Federal Decree-Law No. 47 of 2022. This landmark legislation will bring significant changes to the tax landscape in the UAE, impacting businesses and individuals conducting commercial activities within the country. In this article, we delve into the fundamentals of corporate tax (CT) in the UAE, its objectives, scope, exemptions, rates, and the implications it carries.

What Is Corporate Tax (CT)?

Corporate tax is a form of direct tax levied on the net income or profit generated by corporations and other entities through their business activities. This tax is calculated based on the company's earnings after deducting allowable expenses.

Objectives of CT in the UAE

The UAE's decision to implement CT stems from several key objectives:

1. Global Business Hub: The UAE aims to solidify its position as a global hub for business and investment, attracting multinational corporations and entrepreneurs seeking opportunities in the region.
2. Strategic Development: CT is seen as a catalyst for accelerating the country's development and achieving its strategic goals.
3. Tax Transparency: The UAE reaffirms its commitment to international tax standards, promoting tax transparency, and preventing harmful tax practices.

Scope of CT

The Corporate Tax Law casts a wide net, with CT applicable to the following:

• All businesses and individuals engaged in commercial activities under a UAE commercial license.
• Businesses operating within UAE free zones (subject to specific conditions).
• Foreign entities and individuals conducting trade or business in the UAE on an ongoing or regular basis.
• Banking operations.
• Companies engaged in real estate management, construction, development, agency, and brokerage activities.

Exemptions from CT

While CT is set to be a part of the UAE's tax landscape, certain exemptions are in place:

• Businesses involved in natural resource extraction remain exempt, as they are subject to existing emirate-level corporate taxation.
• Dividends and capital gains from qualifying shareholdings by UAE businesses are also exempt.
• Qualifying intra-group transactions and reorganizations may be exempt, provided specific conditions are met.

Furthermore, CT will not apply to:

• Individual employment income.
• Interest and income from bank deposits or saving schemes.
• Foreign investors' income from various investments.
• Personal real estate investments.
• Income derived by individuals from personal shareholdings or securities.

CT Rates

The Corporate Tax Law introduces progressive tax rates:

• 0% for taxable income up to AED 375,000.
• 9% for taxable income exceeding AED 375,000.
• A different, yet-to-be-specified rate for large multinationals meeting specific criteria related to the OECD Base Erosion and Profit Shifting Project's 'Pillar two.'

The Federal Tax Authority (FTA) will oversee the administration, collection, and enforcement of CT. The FTA provides comprehensive references and guides on corporate tax, along with information on registration and filing returns, available on its website.

As the UAE takes this transformative step towards corporate taxation, businesses and individuals operating in the country must stay informed and adapt to the evolving tax landscape. Compliance with the new CT regulations will be crucial to navigating this change effectively. The introduction of CT reflects the UAE's commitment to global standards while maintaining its appeal as a thriving business destination.