The United Arab Emirates (UAE) is set to implement new tax laws from June 2023, which will have a significant impact on businesses and individuals in the country.
The new tax regime will apply to all businesses that are resident in the UAE, regardless of whether they are located in a free zone. However, there are a number of exemptions and reliefs that will be available, such as exemptions for small businesses (with turnover below AED 10 million), charities, and non-profit organizations.
The introduction of a new corporate tax regime is a significant change for the UAE, but it is important to note that the tax burden will still be relatively low compared to other countries. The new regime is designed to make the UAE a more attractive destination for investment and to boost the economy.
UAE Taxes for Individuals:
A UAE residence visa allows one to become a tax resident of the country and legally optimize their taxes.
Income Taxes: Individuals, both citizens and residents, do not pay income tax whatsoever. They are also exempt from taxes on interest, dividends, wealth, luxury, inheritance, gifts and capital gains.
Here are some key points to keep in mind:
Scope of Corporate Tax:
The UAE has introduced a federal tax system that is applicable to all businesses and commercial activities operating within the seven emirates. However, there are certain exceptions:
✅ Natural Resource Extraction: Businesses engaged in natural resource extraction will continue to follow the tax decrees issued by the respective Emirate.
✅ Personal Income: Individuals earning income in their personal capacity, such as salary or investment income, are exempted from the tax as long as the income-generating activity doesn't require a commercial license.
✅ Free Trade Zone Businesses: Businesses registered in Free Trade Zones are exempted from the federal tax, provided they fulfill regulatory requirements and refrain from conducting business with Mainland UAE. Additionally, passive income like dividends, royalties, and interest from the mainland will also attract a 0% corporate tax rate.
Corporate Tax:
✅ The UAE Federal Corporate Tax Law will be effective from June 1, 2023.
✅ Corporate tax will be introduced at a standard rate of 9% for companies earning more than AED 375,000 ($102,000) a year.
✅ Until June 2023, corporate tax for most companies remains at 0%.
✅The Corporate Tax Law is based on and includes accredited international tax principles.
✅Corporate Tax shall be imposed on a Qualifying Free Zone Person at the following rates:
0% (zero percent) on Qualifying Income.
9% (nine percent) on Taxable Income that is not Qualifying Income
Tax Residency:
✅A new domestic law provides a clear definition of a Tax Resident in the UAE, which will facilitate the application of treaties and the issuance of tax residence certificates under such treaties.
✅An individual or legal entity shall be considered a Tax Resident of the UAE if they have their usual or primary place of residence and their center of financial and personal interests in the UAE, or if they have a permanent place of residence or carry on an employment or business in the UAE.
Withholding Tax:
✅Non-resident persons that do not have a permanent establishment in the UAE or that earn UAE-sourced income that is not related to their permanent establishment may be subject to withholding tax (at the rate of 0%).
✅Withholding tax typically applies to the cross-border payment of dividends, interests, royalties, and other types of income. Withholding tax does not apply to transactions between UAE resident persons.
Tax Groups:
✅Companies can form tax groups with other companies that are part of the same group for tax purposes.
Foreign Tax Credits:
✅Tax incurred by UAE businesses on income earned outside the UAE permits foreign tax credits, which cannot exceed the amount of UAE corporate income tax due on the same income.
Here are some tips for businesses that are preparing for the new tax regime:
✅Review your tax strategy to ensure that you are taking advantage of all of the available exemptions and reliefs.
✅Make sure that you have the right systems and processes in place to track your income and expenses.
✅Get professional advice from a tax advisor to ensure that you are compliant with the new regime.
It is important for businesses and individuals to understand these upcoming changes and take necessary steps to comply with the new laws. This may include seeking professional advice from tax experts and making changes to business operations to ensure compliance with the new regulations.
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