On January 31, 2022 the Ministry of Finance of the United Arab Emirates (UAE) announced the introduction of a federal Corporate Tax (“CT”) on business profits, effective from the beginning of the financial year on June 1, 2023.

The UAE CT regime will be based on international best practices, with a low / minimal compliance burden on businesses.

Corporate Income Tax’s (CIT) Scope 

All businesses and economic activity within the emirates is subject to the United Arab Emirates’ federal tax system. Let’s examine the below-listed corporation taxation scope.

The planned CIT regime is intended to apply to all commercial, industrial, and professional businesses in the UAE, aside from the extraction of natural resources, which is currently subject to Emirate-level taxes up to 55%, and the branches of foreign banks, to whom 20% tax is applicable.

Companies registered in free zones are required to adhere to all legal requirements and refrain from conducting business with the UAE mainland.

All UAE enterprises will be subject to corporation tax, with the exception of those engaged in the extraction of natural resources like oil and gas and overseas bank branches.

A legal entity’s actions are all regarded as “business activities” and fall under the corporate tax structure.

CIT Effect on the UAE Free Zones and Enterprises

According to the rules of each Free Zone, the UAE intends to uphold its commitment to enterprises registered in Free Zones that do not conduct business with the mainland and that will benefit from corporate tax incentives. For every free zone, a yearly CIT return must be filed.

With a portion of their revenue coming from onshore sales of goods or services, it is not uncommon for businesses to operate out of a free zone. Future implementation of excessive administrative requirements to contribute to onshore-generated revenues is likely. It’s feasible that companies with headquarters in free zones might think about establishing a presence onshore as a result of the relaxation of restrictions on foreign ownership and the expansion of real estate possibilities.

The tax and compliance costs of the majority of UAE firms are anticipated to significantly change with the implementation of corporation tax in the UAE. Entities must be in compliance with the new tax regime, which necessitates correct tax impact analysis and adjustments to the corporate structure, operational model(s), finance/tax operations, reporting systems, legal agreements, and transfers pricing policies, if necessary.

You can read more about CIT provisions and effects here.

Taxhelp Corporate Tax Services

At TaxHelp, we offer corporate tax advisory services for companies starting out on this new path.

Early preparation for CIT compliance is critical in avoiding high costs later on. This also helps reduce internal teams' pressure to finalise the preparations at the last minute.

We can help with the start-to-finish implementation of the comprehensive CIT strategy, from the initial assessment through planning, implementation and post-implementation phases.

We would be happy to help clients consider and review their current corporate structures to assess the impact of the proposed UAE CT rules, and also discuss any opportunities resulting therefrom. To get in touch with us, please fill out the contact form and one of our tax specialists will get in touch with you as soon as possible.