The UAE will introduce corporate tax at nine per cent from June 1, 2023, setting a threshold of Dh375,000 profit for the companies.

The threshold has been set in line with the government’s efforts to support small and medium enterprises and startups.

The government released corporate tax law last week, revealing some important details for the companies to be prepared for the new tax regime. Below are all the important details that UAE residents and companies need to know about corporate tax:

When will corporate tax come into effect?

Corporate tax will come into effect from June 1, 2023.

What is the minimum threshold to pay corporate tax?

Companies and individuals posting over Dh375,000 profit per annum will have to pay a nine per cent tax.

Is it the lowest corporate tax rate in the world?

Yes. It’s one of the lowest corporate taxes in the world.

Is this tax levied in other countries as well?

Yes, it’s levied by almost every country and many of them have levied it at more than double the rate of the UAE.

Will corporate tax apply to turnover or profit?

Corporate tax will be levied on the profit, not on the total turnover, of the company.

Will UAE residents getting a salary of over Dh375,000 have to pay tax?

No. It will not be applicable to the salary.

Will business owners earning from the entity as managerial remuneration be subject to tax?

A payment or benefit made to a connected person is deductible from revenue as expenses should it be made at an arms’ length basis (Market standard level) and any excess payment or benefit is subject to corporate tax. The connected person includes owners and directors of the taxable person.

What about income earned from bank deposits, saving schemes and investments in the property market?

Corporate tax will not be applicable on the personal income earned from bank deposits, savings programmes and investments, dividends, or foreign exchange gains. With respect to real estate income, if it’s derived from economic activity (Leasing, selling, transferring, etc.) it may be subject to corporate tax basis as conditions are stipulated in the executive decision in this regard. However if income is earned from real estate investment where commercial activities are performed by the investment manager, it may qualify as exempt income.

Will corporate tax apply to a freelancer?

Individuals holding the freelance permit, under the self-sponsorship and earning income in excess of the threshold will be subject to corporate tax.

Are non-residents also subject to corporate tax?

Non-residents are also subject to corporate tax if they have a permanent establishment in UAE as well as on state-sourced income (i.e., from the sale of goods, provision of services etc.) in the country. Non-residents’ income from operating aircraft, and ships in international space is not subject to corporate tax. A non-resident is not subject to corporate tax on income earned through an investment manager on real estate or any other investment.

Who is exempted from the corporate tax?

A qualifying free zone entity which fulfils all conditions specified in the Executive Regulations of the UAE Corporate Tax Law will be exempt. Natural resource extraction activities are also exempted, however, they’re subject to existing emirate-level taxation. Government entities' activities (Excluding commercial activities), pension funds, investment funds and public benefit organisations are exempt from the corporate tax.

Is it mandatory to maintain records?

Yes. All taxable persons shall be obligated to maintain records and documents for seven years following the end of the tax period.

When tax returns should be filed?

Annual corporate tax returns will be required to be filed by all taxable persons no later than nine months from the end of the relevant tax period.

Can groups file a single tax return and make a single tax payment?

Yes, multi-organisational groups can apply for Tax Group, which is severally liable for the tax and will be required to submit one return combining all tax group members' profit.