New corporate profit tax in the UAE

The new corporate profit tax (CT) will be only the second general tax introduced in the UAE apart from the 5% VAT tax existing since 2018.

What we know about the new tax so far:

  • The CT will be imposed solely on business profits of local, mainland companies. It won’t apply to companies registered in the UAE free zones which conduct business outside the UAE. Free zone companies conducting business outside UAE will still be required to register and file a 0% CT return.
  • The CT will not apply to any personal income, be it salaries, dividends, income from real estate, investments or any other personal gains.
  • Further clarifications will be made by the FTA as to whether free zone companies conducting a part of their activities in the mainland, will be taxed on a pro-rata basis. Companies involved in the extraction of natural resources are also exempt since these legal entities are already subject to a different tax regime on an Emirate level.
  • 0% tax will be applicable on profits up to AED 375,000 (USD 102,079) in a move to support small businesses and startups. Furthermore, dividends and capital gains earned by a company from its “qualifying shareholdings” will also be exempt from the CT. Qualifying shareholdings will be defined in detail at a later stage.
  • The CT will be effective for financial years starting on or after June 1, 2023. Companies may continue to stick to their own financial year. The CT returns will be filed on an annual basis. Filing deadlines are yet to be announced.
  • Businesses will be allowed to carry forward losses from the CT effective date in order to offset taxable income in subsequent financial years. Certain conditions must be met which will be clarified at a later stage.
  • A group of companies may form a tax group to be treated as a single taxable entity. In this case, a single tax return will be filed. Any group company will be able to transfer tax losses to other entities within the group.

Further details are expected to be published on the websites of the Ministry of Finance and Federal Tax Authority around mid-2022, and Dipton Business Solutions will keep releasing updates on the planned CT as the year progresses.