Tax
What is corporate tax imposed on and what is the rate?Corporate tax has been introduced in the UAE under Federal Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“Corporate Tax Law”) with respect to financial years commencing on or after 1 June 2023. Corporate tax applies to businesses in the UAE, foreign companies that are controlled and managed in the UAE, as well as non-UAE resident businesses that derive UAE-sourced income, have a permanent establishment or a nexus in the UAE.
Generally, corporate tax will be imposed on the taxable income of a taxable person at the following rates:
0% on the taxable income not exceeding the specified threshold of AED 375,000; and
9% on the taxable income exceeding the specified threshold above (i.e., more than AED 375,000).
The Ministry of Finance has announced that the UAE is committed to supporting the implementation of a global minimum effective tax rate under the Organisation for Economic Co-operation and Development’s (“OECD”) Base Erosion and Profit Shifting Project (“BEPS”) Pillar Two. As such, the Ministry of Finance has indicated that a different tax rate (likely to be 15%) will be applicable to entities that belong to large multinational group that fall under the OECD BEPS Pillar Two criteria (i.e., where the global revenue of the group exceeds EUR 750 million) pursuant to a separate legislation in the future.
Are there any exemptions or tax holidays available?Certain categories of persons shall be treated as “exempt persons” provided that they satisfy prescribing conditions, which include government entities, government-controlled entities, qualifying investment funds, qualifying public benefit entities, entities engaged in extractive and non-extractive natural resource businesses, etc.
As an additional exception to the general corporate tax rates, free zone entity that meets certain prescribed conditions to be considered a Qualifying Free Zone Person (“Qualifying Free Zone Person”) can benefit from a corporate tax rate of 0% on their “Qualifying Income”.
Small businesses with annual revenue not exceeding AED 3,000,000 may be eligible for relief from corporate tax.
Are businesses that are engaged in extracting natural resources (e.g., oil and gas) subject to different tax rates?Whilst entities engaged in extractive natural resource businesses are exempt from corporate tax, such entities would be subject to tax at the Emirate level at progressive rates up to 55% or rates based on individual agreements with the respective Emirates.
When are corporate tax return filings and payment due?A taxable person must file its corporate tax return to the Authority no later than nine months from the end of the relevant tax period.
A taxable person’s tax period is the financial year or part thereof for which a tax return is required to be filed. The financial year of a taxable person shall be the Gregorian calendar year or the twelve-month period for which the taxable person prepares financial statements.
Are cross-border payments subject to any withholding or retention?Withholding tax is applicable to certain categories of UAE-sourced income generated by non-residents insofar as the income is not attributable to a permanent establishment by the non-resident. Currently, the withholding tax rate in the UAE is set at 0%.
Are individuals subject to personal income tax?Individuals in the UAE are not subject to personal income tax. However, individuals that are considered to be carrying on a business under the provisions of the Corporate Tax Law and its Cabinet Decisions may be subject to corporate tax.
Individuals in the UAE are not subject to personal income tax. However, individuals that are considered to be carrying on a business under the provisions of the Corporate Tax Law and its Cabinet Decisions may be subject to corporate tax.
Does the UAE have transfer pricing requirements?Yes, the UAE has transfer pricing (“TP”) rules in place. TP rules in the UAE follow largely the guidance from the Organisation for Economic Co-operation and Development (“OECD”) TP Guidelines.
According to the UAE TP rules, transactions and arrangements between related parties, i.e. businesses that are affiliated through ownership, control or kinship should be conducted on an arm’s length basis.
Further, persons (or any related persons to them) that own, control or manage a business are considered as “connected” to a UAE business and as such any transactions between the business and the connected persons should be in line with the arm’s length principle.
What are the transfer pricing documentation requirements in the UAE?Taxpayers with related party transactions are required to comply with maintaining certain TP documentation such as the local file and master file, which should be submitted to the Federal Tax Authority within 30 days upon request. It is expected that a TP disclosure form would be required to be filed together with the tax return.
Where a taxpayer belongs to multinational groups headquarted in the UAE and have a total consolidated group revenue of AED 3.15 billion or above, a Country-by-Country report (CbCR) and CbCR notification are required to be submitted.
What is VAT/sales tax imposed on and what are the rate(s)?VAT was implemented in the UAE at the Federal Level on 1 January 2018.
Unless the supply is specifically zero rated or exempt, VAT is imposed on the supply of goods of goods and services in the UAE as well as imports of goods and services. The standard rate of VAT is 5%.
The export of goods and services outside the GCC, international transportation of goods and passengers, medicine and medical equipment, the first supply of residential real estate and certain healthcare and education services are subject to VAT at the zero rate. The supply of margin based financial services, life insurance, local passenger transport and residential real estate other than the first supply are exempt from VAT.
A UAE business is required to register for VAT if the value of annual taxable supplies exceeds the mandatory registration threshold of AED 375,000. A UAE business may register for VAT if the value of annual taxable supplies exceeds the voluntary registration threshold of AED 187,500. Non-residents that are liable to account for VAT must register for VAT irrespective of the value of the supplies.
When are VAT/sales tax return filings and payment due?VAT returns must be filed electronically via the FTA platform (EmaraTax) periodically by the 28th day of the month following the end of the VAT period. VAT liabilities must be paid by the filing deadline.
Is there any real estate transfer tax imposed on the transfer or sale of real estate?A registration fee is payable on the transfer of ownership of land or property at 4% of the sale value. This fee is also payable on the transfer of shares in companies holding real estate based on the value of the underlying property.
Is there any excise tax imposed? What are the rate(s)?In the UAE, excise tax became effective on 1 October 2017 and is generally levied on specific goods that are considered harmful to the health of the general public in order to discourage their consumption.
The specific goods which are currently subject to excise tax in the UAE (“excise goods”) and their rates are as follows:
tobacco and tobacco products – 100%
liquids used in electronic smoking devices and tools – 100%
electronic smoking devices and tools – 100%
carbonated drinks – 50%
energy drinks – 100%
sweetened drinks – 50%
The excise tax is based on the higher of the retail sales price of the excise goods or a standard price published by the Federal Tax Authority.
When excise goods are imported, stockpiled, or released for consumption within the UAE, the entity responsible for importing, stockpiling, or producing these goods at the time must register for excise tax. This registration makes them liable for excise tax obligations and requires them to report and remit the due excise tax to the FTA.
What is subject to custom duties and what are the rate(s)?The UAE has enacted the GCC Customs law under which customs duty is imposed at the first point of entry into the GCC.
Customs duty is imposed at a 5% rate on imports based on the cost, insurance and freight (CIF) invoice value. However, higher rates apply to tobacco (100%) and alcohol (50%), whereas other goods are exempt.
The import of goods into free zones is generally not subject to customs duty and the duty is suspended until the goods are imported into the UAE mainland. There are also other exemptions from customs duty.
Are there any payroll taxes or social security contributions required in the UAE?There is a social security contribution regime in the UAE whereby the 5% of the Emirati employee’s gross remuneration is payable by the employee and 12.5% is payable by the employer.
Other GCC nationals residing and working in the UAE are also obliged to follow the social security contribution laws and regulations set in their home countries by contributing a percentage of their salary earned in the UAE to their relevant government authorities.
Are there any other taxes or reporting regimes that businesses should be aware of in the UAE?
1. Economic substance regimeIn the UAE, the Economic Substance Regulations (“ESR”) introduces a requirement for UAE entities to maintain an “economic presence” in relation to the activities they undertake in the region. The ESR applies to onshore companies, free zone companies and other business forms that carry out one of the nine prescribed “Relevant Activity(s)” in the UAE (“ESR Licensee”).
If a UAE company is subject to ESR (“ESR Licensee”), the ESR Licensee would be obliged to file notifications and reports within a prescribed timeline as well as demonstrate that it satisfies the economic substance test in relation to the Relevant Activity that it carries out.
2. Municipality taxMost Emirates impose a municipality tax on properties with reference to the annual rental value. The average rate for the tax for residential properties is 5%, as is the case in the Emirates of Dubai, and in some Emirates the rate varies and is charged on both the tenant and property owner.
3. Hotel and tourism taxesCertain Emirates impose various taxes on hotels based on the value of the hotel services. These include municipality fees and a service charge. In addition, a Tourism Dirham Fee is chargeable to hotel guests and tenants of hotel apartments per night of occupancy (for a maximum of 30 consecutive nights) ranging from AED 7 to AED 20 per night depending on the category/grade of the hotel.
