Corporate Tax

The Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses (hereinafter referred to as the “Corporate Tax Law”) was issued by the United Arab Emirates (“UAE”), on 09 December 2022.

The Corporate Tax Law provides the legislative basis for the introduction and implementation of a Federal Corporate Tax (“Corporate Tax”) in the UAE and is effective for financial years starting on or after 1 June 2023.

Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses.

Corporate Tax applies to juridical persons incorporated in the UAE and juridical person’s effectively managed and controlled in the UAE, as well as to foreign juridical persons that have a permanent establishment

Individuals will be subject to Corporate Tax only if they are engaged in a business or business activity in the UAE, either directly or through an unincorporated partnership or sole proprietorship.

 Corporate Tax is a Federal tax and will therefore apply across all the Emirates.

The terms “Business” and “Business Activity” as defined in the Corporate Tax Law identify when the activities of certain persons give rise to a UAE Corporate Tax liability by considering the person to be a taxable person.

“Business” means any economic activity, whether continuous or short term, conducted by any person. It is implied that a business is conducted with a profit motive, and that there is the existence of some system and organization to the activity conducted.

For the application of the Corporate Tax Law to companies and other juridical persons, all activities conducted and assets used or held will generally be considered activities conducted, and assets used or held, for the purposes of a “Business”.

Example of Corporate Tax

If a business has earned taxable income of AED 1 Million , what will be the UAE Corporate Tax amount

The Corporate liability will be calculated as follows:

• Taxable income of AED 375,000 (amount to be confirmed in a Cabinet Decision) subject to CT at 0%: AED 375,000 x 0% = AED 0
• Taxable income exceeding AED 375,000 (amount to be confirmed in a Cabinet Decision) subject to CT at 9%: (AED 1,000,000 – AED 375,000) = AED 625,000 x 9% = AED 56,250

The UAE CT liability for the Tax Period will be AED 0 + AED 56,250 = AED 56,250