UAE Corporate Tax will apply to all business and commercial activities alike, except for the extraction of natural resources, which will continue to be subject to Emirate level taxation.
All activities undertaken by a legal entity will be deemed “business activities” and hence be within the scope of UAE Corporate Tax. The taxable income will be the accounting net profit of a business, after making adjustments for certain items to be specified under the UAE Corporate Tax law. The Business income earned under a commercial license will be within the scope of UAE Corporate Tax.
The accounting net profit of a business is the amount reported in the financial statements prepared in accordance with internationally accepted accounting standards.
Who is supposed to pay UAE Corporate Tax?
Natural or Individual Persons:
UAE Corporate Tax will also apply to natural or individual persons engaged in a business or commercial activity in the UAE. This will include sole establishments or proprietorships and individual partners in an unincorporated partnership that conducts business in the UAE. Similar approaches are taken in other jurisdictions without parallel taxes on personal income from a business.
Whether an individual is engaged in a business that is subject to UAE Corporate Tax would generally depend on whether the activity requires the individual to obtain a commercial license or equivalent permit from the relevant competent authority (e.g., the relevant Department of Economic Development or registration authority of a Free Zone) in the UAE.
UAE Corporate Tax will apply to UAE companies and other legal persons incorporated in the UAE and to foreign legal entities that have a permanent establishment in the UAE or that earn UAE-sourced income.
Legal persons include Limited Liability Companies, Private Shareholding Companies, Public Joint Stock Companies, and other entities established under the laws of the UAE that have separate legal personalities.
For the application of UAE Corporate Tax, legal persons incorporated in a foreign jurisdiction that is effectively managed and controlled in the UAE will be treated as if they were UAE incorporated entities.
Government and Government Owned entities:
While the activities of the Government would typically be non-commercial in nature, the Government may conduct commercial activities either by themselves or in association with third parties.
Any business activity carried out directly by the Government under a trade license will be within the scope of the UAE Corporate Tax regime.
Free Zones are an essential part of the UAE economy and have been central to achieving the country’s aim of encouraging foreign direct investment and enhancing the ease of doing business. Whilst companies and branches that are registered in a Free Zone will be within the scope of the UAE Corporate Tax and subject to tax return filing requirements, the UAE Corporate Tax regime will honor the tax incentives currently being offered to Free Zone Persons that maintain adequate substance and comply with all regulatory requirements.
The UAE government has positioned the introduction of corporate tax to ensure that the UAE will remain an attractive destination for foreign direct investment for years to come.
The UAE will also continue to attract highly qualified individuals into the country because it will remain tax-free for employment income (whether received from the public or private sector), and no tax will be levied on income or gains deriving from personal investments.
Note: The information in this article is meant to provide an initial introduction to the proposed UAE Corporate Tax regime and not be used for individual or business decisions as it does not represent the final legislation. More information on the UAE Corporate Tax regime will be available in due course.
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