Effective Date

The CT will be applicable for financial years starting on or after 1 June 2023. Any company that adopts a fiscal year starting on 1 June 2023 and ending 31 May 2024 will be subject to CT starting 1 June 2023. The first tax return filing is likely to be due towards the end of 2024. Any company that adopts a calendar year starting 1 January 2023 and ending 31 December 2023 will be subject to CT starting 1 January 2024 and filing is likely to be due towards mid-2025.

Scope of the CIT

• Businesses operating in the extraction of natural resources. These will continue to be subject to the tax decrees issued by the respective Emirate
• Individuals earning income in their personal capacity (i.e. salary, investment income) as long as the income generating activity does not require a commercial license
• Businesses registered in Free Trade Zones, provided they comply with all the regulatory requirements, and that do not conduct business with Mainland UAE

It is interesting to note that the foreign Banking sector, which has been operating under the Emirate level Bank tax decree will now be subject to the UAE Federal Tax Law. The impact of CT on the Emirate level banking tax decree will be communicated in due course. This will be a significant shift for both branches of foreign Banks, that will need to switch to the new Law and for local banks who similar to other businesses will now be subject to corporate tax.

Rates

The announced UAE CT regime introduces a tier system with 3 rates:

• All annual taxable profits that fall under AED 375,000 shall be subject to zero rate.
• All annual taxable profits above AED 375,000 shall be subject to 9% rate.
• ALL MNEs that fall under the scope of Pillar 2 of the BEPS 2.0 framework (i.e. consolidated global revenues in excess of AED 3.15 billion) shall be subject to different rates as per OECD Base Erosion and Profit-Sharing rules.

Taxable profits are the accounting profits subject to certain adjustments.

Exempted Income

The following income shall be in general exempt from Income Tax:
Dividend income earned by UAE company from its qualifying shareholdings (to be defined in the law)

• Capital gains
• Profits from group reorganization
• Profits from Intra-group transactions

There will be no UAE withholding tax on domestic and cross-border payments.

Considering the exempt income scheme it can be anticipated that the Law shall include a participation exemption or similar principles commonly seen in international markets and businesses would need to evaluate if they will be able to meet the prescribed conditions (if any) to avail the exempt income scheme.

Free Trade Zones

The UAE intends to honor its commitment to businesses registered in Free Trade Zones to the extent that such businesses do not conduct business with mainland shall be subject to zero percent tax (or be exempt as the case may be) until the end of the holiday period. All free zones have to file an annual CT return. Businesses with presence in both Mainland UAE and Free Trade Zones as well as those operating under the dual license scheme should consider the impact on their operating model.

Losses

Accumulated taxable losses shall be allowed to offset future taxable profits.

Group

Tax grouping and group relief provisions are allowed. UAE Groups should be able to file consolidated tax returns. Offsetting tax losses among groups might be allowed.

Foreign Tax Credit

Taxable entities will be allowed to take as a credit against its annual tax liability the foreign corporate tax paid on UAE taxable income.