The United Arab Emirates are notoriously known for their Tax-Free system for Corporations and individuals. Business entities operating in the oil-rich country are not subject to Corporations Income Tax, at least until 01 June 2023.

In an unprecedented move, the UAE Ministry of Finance announced on 31 January 2022 that the Country is set to lift Tax-Free Status and introduce a 9% Corporate Tax on Business profits for financial years starting on or after 01 June 2023 for Corporations earning in excess of AED375,000.Multinationals present in the UAE and earning in excess of €750 million in global revenues will be subject to a 15% Corporation Income Tax, which is the Global Minimum Corporate Tax (GMCT).

The new legislation has not yet been published but we understand from various sources that the purpose of the tax move is to bring the UAE in line with the tax legislation of many countries worldwide.

The newly introduced Corporations Income Tax will be applicable across all Emirates and will apply to all businesses and commercial activities except for the extraction of natural resources which will continue to be subject to the Emirate level tax system.

Free Zone businesses will be subject to the Corporations Income Tax. However, they will continue to benefit from the Corporation Tax holidays or 0% taxation if they comply with all regulatory requirements and do not conduct business in mainland UAE. The new proposed tax legislation left intact the exemption for individuals from income tax, capital gains tax on real estate and other investments, and other earnings that do not come from a business.

Despite introducing a 9% Corporation Income Tax in a Country well-known for offering a Tax-Free Status, the UAE new Corporation Income Tax will remain one of the most competitive taxation systems in the Middle East where the Corporation Income Tax rates in the Gulf Cooperation Council Countries, Egypt and Jordan is set between 10% to 35%.

The UAE Corporations Income Tax procedure is likely to be in line with the legislation of other Middle East countries. Comparably to the Egyptian Corporation Income Tax, we anticipate that the UAE Corporation Income Tax will be imposed on the annual taxable net profit and Corporations will be required to file annual Corporate Income Tax self-assessment return signed by the Corporations internal or external tax advisor.

Further, it is highly likely that any understatement of tax liabilities in the tax return and late payment of the due tax amount will result in the imposition of financial penalties. As part of the UAE digital transformation, we also anticipate that a special Corporation Income Tax return web portal will be created for Corporations to complete a paperless self-assessment.

In AWS Advocates We understand from the UAE Ministry of Finance announcement that businesses will have ample time to prepare for the introduction of the Corporate Income Tax, and further information on the UAE Corporate Tax regime will be provided toward the middle of 2022 to help businesses get ready and fully compliant.

We will provide you with further updates in due course.

To read the full announcement of the UAE Ministry of Finance and FAQ