Currently, there is no Corporate Tax in the UAE, at the Federal level. However, under the dubai taxation system, Corporate Tax (CT) is levied on oil and gas companies and branches of foreign banks at an Emirate level. Various Free Zones in the UAE have their own rules and regulations , and no corporate tax is levied on any company incorporated in such free zone. UAE has proposed to introduce the dubai income tax from June 1, 2023 @ 9% for income exceeding AED 375,000 . The Federal Tax Authority will be responsible for the administration, collection and enforcement of UAE CT. UAE Corporate Tax will apply to all UAE businesses and commercial activities alike, with certain given exceptions.
Dubai Income Tax – Tax Applicable by Resident/Non-resident in the UAE
Dubai income tax – How is the Dubai Corporate income tax rate applicable on various income earned by resident of the UAE and non-resident in the UAE ?
Dubai income tax (Dubai Corporate Tax) is applicable on the profits and gains of business , carried out by both, residents, as well as non- resident of Dubai. For non-resident, certain specific income sourced in the UAE / earned by PE of the non- resident in Dubai are liable to tax. Certain income, like employment income/ investment income would be exempt from the applicability of dubai income tax
What is the rate at which income is chargeable to tax in Dubai ?
The dubai income tax will be levied at the rate of 9% on the net profit or loss after certain adjustments on income above AED 375,000. However, the rate for non business income of individuals is 0% . However, overseas citizen, who settle in Dubai, during the middle of the year , may need to evaluate, if they would be liable to tax on dubai income overseas . For example, if an Indian citizen settles in Dubai in November 2022, the income earned by him during FY 2022-23, may be liable to tax in India.
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What is the Dubai corporate income tax rate ?
Currently, Dubai corporate income tax rate is zero. However, dubai income tax will be levied at the rate of 9% on the net profit or loss of business after certain adjustments on income above AED 375,000, for financial year commencing on or after June 1, 2023.
How much is Dubai capital gains tax ?
Under the dubai taxation system, capital gains is chargeable to tax at the rate of 0%. This is both for the resident shareholders of UAE entities , as well as NR shareholders and foreign companies , who invest into capital assets in the UAE, in so far as following capital assets are concerned : –
- Shares of UAE company ;
- Property in the UAE ;
What is the UAE Corporate Tax for UAE Free Zone companies ?
Free Zone companies in UAE would continue to claim exemption from taxable profits, if they meet the condition of registration as per their Free Zone and do not do business with mainland entities. However, it would be interesting to see how they would be taxed if they are part of MNC covered under Pillar 2 (consolidated revenue > Euro 750 million) . Once the law is issued, this would be the most interesting aspect to look out for .
What is the impact of UAE Corporate Tax on ESR Regulations ?
While there is no clarity as of now, entities covered under UAE Corporate Tax may not be required to comply with ESR. However, Free Zone companies/ others, who claim exemption from dubai corporate tax, may continue to be covered under ESR compliance to establish substance in UAE .
Under the Dubai income tax regime, would Foreign Tax credit be available for taxes paid by UAE entities on overseas income taxable in the UAE ?
UAE draft proposals allow companies to claim credit for WHT deducted on overseas income. As a general rule, following principle should be kept in mind : –
(a) Credit may be available only against UAE tax payable on overseas income in UAE .
(b) Free Zone entities, if they are exempt from tax may not get a credit for the tax in UAE
(c) If UAE tax is less than overseas WHT, credit should be available only to the extent of UAE tax.
How would UAE Corporate Tax impact Foreign company Branches in UAE ?
Foreign company Branches would be considered PE in UAE and would be liable to Corporate Tax under proposed Dubai Corporate taxation system, unless specific exemptions are available. However, credit for dubai income tax can be claimed by their HO , subject to domestic credit rules.
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Key takeaways from the Dubai Income Tax
- There would be no tax on the income of individuals , except business income under the UAE Corporate Tax. Accordingly, the following income earned by UAE and foreign individuals will be exempt :-
- Employment income
- Dividends,
- Rental receipts from UAE real estate investments ; and
- Other investment income.
- Non – Resident’s income will be subject to corporate tax in UAE, only if :-
- Income of Non – Resident which is sourced in the UAE. ; or
- Non – Resident have a Permanent establishment in UAE and the income is derived from such Permanent Establishment
- Corporate Tax will be levied on the net profit or loss after certain adjustments.
- UAE CT regime will continue to apply tax incentives which are currently offered to the companies and branches in Free Zone
- Businesses engaged in the extraction and exploitation of UAE natural resources that are subject to Emirate-level taxation. Such entities engaged in the extraction and exploitation of natural resources are subject to Emirates level taxation . To avoid double taxation , it has been provided that such businesses will be exempt from the application of corporate tax
- The rate of 0% withholding tax, shall apply to all the local, foreign payments made by UAE businesses or specified transactions
- Capital Gains and Dividend income are exempt from CT provided certain conditions are required to be fulfilled.
- A UAE resident group of companies will be able to elect to form a tax group, which would be treated as a single taxable person (or a fiscal unity) provided certain conditions are required to be fulfilled.
- The CT regime will allow the transfer of losses between group companies, provided that they are at least 75% commonly owned.
FAQs Related to Dubai Income Tax
1. What is the proposed date from which the Corporate Tax would be levied ?
Dubai income tax (Dubai Corporate Tax) is proposed to be levied for financial years commencing from June 1, 2023, on the profits and gains of business carried out by the non-resident as well as the resident of Dubai
2. What is the rate of Corporate Tax ?
The rate of corporate tax are as under :-
- 0% for taxable income up to AED 375,000
- 9% for taxable income above AED 375,000
3. Whether salary earned by individual is liable to Dubai Income Tax / Corporate Tax ?
There would be no tax on the income of individuals , except business income under the UAE Corporate Tax.
4. Whether the losses of one company be offset against income of another company ?
The CT regime will allow the transfer of losses between group companies, provided they are at least 75% commonly owned.
5. Whether each and every company in the UAE is required to comply with the statutory requirements ?
A UAE resident group of companies will be able to elect to form a tax group, which would be treated as a single taxable person (or a fiscal unity) provided certain conditions are required to be fulfilled, and can comply with the compliances on behalf of group companies.
6. What is the rate of withholding tax ?
The rate of 0% withholding tax, shall apply to all the local as well as foreign payments made by UAE businesses or specified transactions.
7. What is the rate of Dubai CT on capital gain and dividend income ?
Capital Gains and Dividend income are exempt from CT provided certain conditions are required to be fulfilled.
