The ministry of finance (MOF) of the United Arab Emirates has recently announced the introduction of a federal corporate tax in the UAE (the ‘UAE Corporate Tax’). ‘Corporate Tax’ can better be understood as a form of direct tax levied on the net income or profit of a corporation or business entity. It is commonly also referred to as ‘business profit tax’ or ‘corporate income tax’. The newly introduced UAE corporate tax will apply in the country starting from the financial year of Ist of June 2023. The corporate tax law in itself is awaited to be issued. However, the key inputs of the new corporate tax law as declared by the MOF will be detailed in this article.

How does the corporate tax apply?

The UAE corporate tax will apply to all business and commercial activities in the UAE, except for the commercial activity of extraction of natural resources, which would still be taxed as per emirate specific taxation. The corporate tax will apply to ‘taxable income’, which amounts to the accounting net profit of a given business after adjusting certain items (deductibles), as later specified under the UAE corporate tax law. Commercial activities including all nature of business activities carried out in the UAE, under a trade license or permit, including income earned under freelancer permits (provided taxable income exceeds Aed 375,000), shall be included within the scope of applicability of the UAE corporate tax regime,

Key parameters of the new UAE federal corporate law:

Exemption provided under the UAE Corporate Tax regime:

By introducing the new corporate tax regime for the first time in the country, the UAE aims to implement international best practices in creating a leading global center for investment and businesses, while accelerating the country’s strategic objectives for further advancement. The new changes also reaffirm the country’s commitment in meeting international standards for tax transparency and in curbing negative tax practices.