CORPORATE TAX OF UAE :-LATEST UPDATE

 

CORPORATE TAX OF UAE; 1. The United Arab Emirates (UAE) Ministry of Finance has published Federal Decree-Law No. 47 of 2022 providing the legislative framework for corporate tax on business profits in the UAE. 2. UAE Corporate Tax (UAE CT) will become effective for financial years starting on or after 1 June 2023. It shall apply to: Individuals who are engaged in a business or business activity in UAE through an unincorporated partnership or sole proprietorship; Juridical persons incorporated in the UAE; Juridical persons effectively managed and controlled in the UAE; and Foreign juridical persons that have a permanent establishment in the UAE. 3. The decree provides that the financial statements of businesses should be prepared in accordance with accounting standards accepted in the UAE. 4. Taxpayers should prepare financial statements on an accrual basis unless they are permitted to use the cash basis of accounting instead. 5. Further, in determining Taxable Income, transactions and arrangements between Related Parties must meet the arm’s length standard. The arm’s length result of a transaction must be determined by applying one or a combination of the prescribed transfer pricing methods. 6. The corporate tax shall be imposed on the Taxable income at the following rates: (A) The announced UAE CT regime introduces a tier system with 3 rates: All annual taxable profits that fall under AED 375,000 shall be subject to zero rate. All annual taxable profits above AED 375,000 shall be subject to 9% rate. ALL MNEs that fall under the scope of Pillar 2 of the BEPS 2.0 framework (i.e. consolidated global revenues in excess of AED 3.15 billion) shall be subject to different rates as per OECD Base Erosion and Profit-Sharing rules. (B) Taxable profits are the accounting profits subject to certain adjustments. . 7. Despite this tax increase, UAE will still be one of the most attractive worldwide locations to conduct businesses for the following reasons: No other country has a lower rate on corporate tax with only Hungary and Montenegro sharing the same 9% corporate tax rate. There will be a tax exemption for the first AED 375,000 of taxable profits. UAE holding companies will be completely exempt from paying corporate tax on capital gains and dividends received from qualifying shareholdings. The UAE will continue to comply with international standards for tax transparency. The UAE has an extensive network of double tax treaties, with 107 in-force double tax treaties and a further 30 in various stages of signature or ratification (as of 31 January 2022). The UAE’s infrastructure and lifestyle make it a much more attractive proposition for start-ups and small businesses than most other low tax jurisdictions. BY CA.(Dr.) RAJ CHAWLA