Managing Partner & Chief Executive Officer, MMJS Consulting, Dubai
Surandar Jesrani is the CEO of MMJS Consulting in Dubai, steering businesses toward successful VAT implementation in the UAE and GCC since 2017. Before MMJS, he managed finance and taxation at a top Private Equity Group and sharpened his international taxation skills at Infosys and General Motors. An alumnus of The Institute of Chartered Accountants of India, Surandar specialises in Accounting, Finance, and International Taxation.
UAE’s corporate tax update
August 10, 2023
Surandar Jesrani of MMJS consulting in Dubai shares his thoughts on the implication of UAE’s corporate tax update with eprivateclient magazine. Read the full article here or the summary below.
The United Arab Emirates (UAE) has long demonstrated its commitment to international tax transparency standards, notably as a member of the Organization of Economic Co-operation and Development (OECD). Here’s a glimpse into the recent evolution in the UAE’s tax scenario.
The path to global tax transparency
OECD’s 2015 Base Erosion and Profit Sharing (BEPS) Action Plans aimed at preventing Multi-National Enterprises (MNEs) from employing strategies to lower their tax liabilities across jurisdictions. Nonetheless, as the initial BEPS strategies weren’t wholly suited to the challenges of a digital economy, the OECD introduced an Inclusive Framework (IF) in 2021. This two-pillar model proposed that MNEs should pay a minimum corporate tax of 15% in every jurisdiction.
The UAE, endorsing this global tax framework initiative, joined a consensus with 139 other countries. In alignment with its OECD obligations and its vision of positioning itself as a leading global business hub, the UAE announced a federal corporate tax on business profits in 2022.
Key principles of the UAE corporate tax update
UAE’s corporate tax regime adheres to universally acknowledged principles ensuring:
- Flexibility with modern business practices.
- Simplicity and certainty.
- Equitable taxation.
- Transparent procedures.
Effective from 1 June 2023, the UAE corporate tax law encompasses 20 chapters and 70 articles detailing the scope, application, and compliance rules. All business and commercial activities, undertaken by individuals or entities, fall under this tax regime, divided into resident and non-resident classifications.
An overview of taxable entities
- Resident Persons: Legal entities in the UAE are taxed on global income.
- Non-resident Persons: Foreign businesses are taxed on income sourced in the UAE.
Moreover, all business-active individuals and legal entities will need to register under the UAE corporate tax law.
Certain entities can avail tax exemptions, like the UAE government entities, qualifying public benefit entities, qualifying investment funds, and some specific entities as designated by the Minister.
Tax rates and categories
Depending on the size and type of business, the UAE corporate tax rates vary:
- Taxable Persons: 0% on income up to AED 375,000, and 9% on income above this threshold.
- Qualifying Free Zone Persons (QFZP): 0% on qualifying income and 9% on other incomes.
- Small businesses: 0% if the gross revenue of the previous year is under AED 3 million; otherwise, they’re taxed similarly to general taxable persons.
MNCs, until the full adoption of Pillar Two rules by the UAE, will be taxed under these regular corporate tax rates.
Entities are required to file tax returns within nine months post the close of a tax year. While there are provisions for withholding taxes on specific domestic and foreign payments, currently, it stands at zero per cent.
UAE’s introduction of corporate tax is a strategic move in its journey as an OECD IF member, especially concerning the global minimum tax proposed by BEPS Pillar Two. With a 9% tax rate, the UAE remains an attractive proposition when compared to other tax jurisdictions. Furthermore, the UAE tax law’s foundation on internationally practised principles ensures a streamlined transition for businesses accustomed to similar laws elsewhere. As a result, many enterprises may re-evaluate their corporate structures to maximize genuine tax benefits under this new regime.
If you would like to speak to one of our UAE taxation experts, please get in touch.