Introduction To Corporate Tax

introduction

Introduction To Corporate Tax

The United Arab Emirates (the “State”) has issued Federal Decree-Law No. 47 of 2022 regarding corporate and business tax (hereinafter referred to as the “corporate tax law” from 09 December 2022). The Corporate Tax Law provides the legislative basis for imposing and applying a federal tax on corporations (“corporate tax”) in the country and applies to fiscal years beginning on or after June 1, 2023 .

The introduction of the corporate tax aims to support the state in achieving its strategic objectives and to accelerate the pace of its development and growth. The certainty of a competitive corporate tax system that adheres to international standards, coupled with an extensive network of agreements to avoid double taxation of the country, will enhance the country’s position as a leading hub in the field of business and investment.

What Is Corporate Tax

Corporate tax is a form of direct tax levied on the net income of corporations and other businesses.
In some other countries corporate tax is referred to as “corporate income tax” or “business profit tax”.

Who Will Be Subject To Corporate Tax

In general, corporate tax applies to the following “taxable” persons:

Companies residing in the country and other legal persons established in the country or who are actively managed and controlled in the country.

Natural persons (individuals) who carry on business or business activity in the country as specified in a decision to be issued by the Council of Ministers at the appropriate time.

Non-resident legal persons (foreign legal entities) who have a permanent establishment in the country (which will be explained in [Section 8]).

The scope of corporate tax application includes legal persons incorporated in the free zones in the country as “taxable” persons, and they will have to comply with the requirements stipulated in the corporate tax law. However, a Free Zone-based person who meets certain conditions is then deemed to be an Eligible Free Zone-based person can benefit from 0% corporate tax on their qualifying income (see conditions in [Section 14]).

Non-residents who do not have a permanent establishment in the country or who earn income arising in the country that is not related to their permanent establishment may be subject to withholding tax (at the rate of 0%). Withholding tax is a form of corporate tax that is collected at source (origin) by the payer on behalf of the recipient of income. Withholding taxes are found in many tax systems and are usually applied to cross-border payments of dividends or shares, interest, royalties, and other types of income.