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Breaking :UAE to have a federal corporate tax from June 2023

Breaking :UAE to have a federal corporate tax from June 2023

As a move to boost UAE’s position as a favourite business destination with the help of a competitive tax regime, the ministry of finance has announced a “federal corporate tax” on the profit of businesses. This tax will be effective from the financial year starting on or after June 1, 2023.

In this new regime, a statutory tax rate of 9% will apply on the companies operating in the UAE. This slab rate is decided keeping in mind the existing provisions in the developed economies globally. According to research conducted by a tax foundation in the USA, the corporate tax rate in EU27 countries and OECD countries is 21.3% and 23.04% respectively.

To avoid the problem of double taxation, it is provided that the foreign taxes paid will be credited against any payable UAE corporate tax. In simple words, if you are subject to a foreign tax, then your tax liability in UAE would reduce to the already paid tax amount.

Relief for small and medium size enterprises
As a relief for the small and Medium size enterprises, there will be a zero tax rate for taxable profits up to AED 375,000. The tax rate above this minimum profit level is not disclosed yet by the ministry. For this, we need to wait for the official legislation.

No personal income tax
The ministry of finance clarified that there will be no tax on personal income, deriving from employment, real estate and other investment. Further, all the incomes, except those arising from commercial activities, are outside the purview of this taxation regime.

The businesses involved in the extraction of natural resources, such as oil and gas are exempted from corporate tax as they are already subject to the emirate-level taxation. The businesses operating in the Free zone will not be affected by this corporate tax. Further, the foreign investors, who do not run their businesses in UAE, will also be exempted from this tax liability.

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