UAE Corporate Tax: Who is Exempt?
UAE Corporate Tax: Understanding New Exemptions for Businesses
The United Arab Emirates (UAE) Ministry of Finance recently issued a new directive on the determination of conditions under which a person may continue to be deemed an exempt person, thereby clarifying the application of the Corporate Tax Law. The directive, referred to as Ministerial Decision No (105) of 2023, is aimed at ensuring a transparent and efficient tax system that promotes business growth in the UAE. This article explores the details of the directive and highlights the key takeaways for businesses.
Overview of the Directive
The directive specifies that UAE companies undergoing liquidation or termination proceedings are exempt from paying corporate tax. It also clarifies rules to ensure that businesses remain eligible for a corporate tax exemption if they fail to meet the relevant exemption conditions under certain circumstances.
Notably, businesses undergoing liquidation or termination are exempted from paying corporate tax provided they have submitted a notification to the Federal Tax Authority (FTA) within 20 business days from the date of the beginning of the liquidation or termination procedure. Additionally, the directive addresses situations where a business no longer meets exemption conditions primarily to gain a corporate tax advantage. In such cases, the business will cease to be considered exempt on the date it no longer fulfills the exemption conditions.
Understanding the Rationale Behind the Directive
The decision to issue the directive was informed by the UAE government’s commitment to building a tax system that supports the country’s economic growth. The government recognizes the importance of reducing the tax burden on businesses, which is key to attracting foreign investment and enhancing the country’s economic competitiveness.
Moreover, the directive is a step towards enhancing the UAE’s status as a hub for global business and investment. By providing clarity on the conditions under which businesses can continue to be deemed an exempt person, the directive seeks to boost investor confidence and encourage foreign businesses to set up operations in the country.
Key Takeaways for Businesses
The new directive has several implications for businesses operating in the UAE. First, businesses undergoing liquidation or termination proceedings can breathe a sigh of relief as they are now exempted from paying corporate tax. However, it is important to note that the exemption only applies if the business has submitted a notification to the FTA within 20 business days from the date of the beginning of the liquidation or termination procedure.
Secondly, businesses must ensure that they meet the relevant exemption conditions to continue being considered exempt. Failure to do so could result in the business losing its exempt status. In such cases, the business will be required to pay corporate tax.
Lastly, the directive underscores the importance of complying with tax laws and regulations in the UAE. Failure to comply with tax laws can lead to penalties and fines, which can negatively impact a business’s financial performance.
Conclusion
The UAE’s new directive on corporate tax exemptions is a welcome development for businesses operating in the country. The directive provides clarity on the conditions under which businesses can continue to be deemed an exempt person, thereby promoting a transparent and efficient tax system that supports economic growth. Businesses must ensure that they comply with the relevant exemption conditions to continue benefiting from the exemption. The government’s commitment to building a tax system that supports economic growth is a positive development for businesses and investors in the UAE
Why has UAE decided to Implement Corporate Tax?
Implementing a competitive corporate tax system that adheres to international standards is anticipated to solidify the UAE's status as a top global destination for investment and commerce, expediting the country's growth and progress towards its strategic goals. The introduction of a corporate tax system further demonstrates the UAE's dedication to upholding international tax transparency standards and thwarting unjust tax practices
From which Date is Corporate Tax Being Introduced in UAE?
Starting from June 1, 2023, the UAE Corporate Tax system will be applicable to financial years that begin on or after that date. For instance, a business with a financial year that starts on July 1, 2023, and ends on June 30, 2024, will be subject to UAE CT from July 1, 2023. Similarly, a business with a financial year that starts on January 1, 2023, and ends on December 31, 2023, will be subject to UAE Corporate Tax from January 1, 2024.
To whom is UAE Corporate Tax Applicable?
The UAE CT is applicable to legal entities that are incorporated in the UAE and legal entities that are managed and controlled within the UAE. It also applies to foreign legal entities that have a permanent establishment in the UAE. For more information on who is considered a resident for UAE CT purposes, refer to question 20.
Individuals are only subject to CT if they are engaged in a business or business activity in the UAE, either directly or through an unincorporated partnership or sole proprietorship. The Cabinet will issue a decision in the future to provide additional information on what would bring a natural person within the scope of UAE CT.
Will Companies Owned by UAE nationals or GCC Nationals be Subject to Tax?
That's correct - the UAE CT does not discriminate based on nationality or residency. Juridical persons, regardless of the nationality and residency of their founders or ultimate owners, will be subject to UAE CT if they are incorporated or resident in the UAE, or have a permanent establishment in the UAE.
Is it Applicable to All Emirates in UAE?
Certainly. The UAE CT is a tax at the federal level, which means it will be applicable to all Emirates in the country.
Will I have to Pay Additional Taxes Along with Emirates Level Taxes?
Companies involved in the extraction of natural resources in the UAE and some non-extractive activities subject to Emirate-level taxation are not included in the scope of the UAE CT, subject to certain conditions being met. However, other companies may be liable to pay both Emirate-level taxes and the CT. Emirate-level taxes paid cannot be used to offset or reduce the amount of CT payable.
Is VAT being Replaced for UAE Corporate Tax?
No, CT and VAT are two different types of taxes. Both will continue to apply in the UAE
Do We still Need to Pay UAE Corporate Tax if I am paying VAT?
If your business is registered for Value Added Tax (VAT), you will need to make separate payments for both VAT and CT. However, even if your business is not registered for VAT, you may still be required to pay CT.
