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UAE Corporate Tax Consultancy | Corporate Tax in Dubai.

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August 28, 2022 |

43 mins read

The Government of UAE, on 9th December, 2022 announced the new UAE Corporate Tax Law, which is effective for Tax period starting on or after 1st June 2023.  The Law aims at taxing business profits of UAE Residents (both corporate and individual) while providing that certain income would be exempt from tax . The Corporate Tax shall also be applicable on foreign profits of UAE residents. However, in such a case, UAE Corporate Tax liability shall be reduced by the amount of tax paid in foreign country on foreign income.

Country UAE (United Arab Emirates)
Tax Corporate Income Tax
Introduced for FY commencing

on or after

June 1, 2023

The UAE had earlier issued a Public Consultation Document on the UAE Corporate Tax on 28th April 2022. Its purpose was to invite comments on the proposed Corporate Tax regime in the UAE and to deliberate on any area that might have been left out. The Ministry of Finance, has now, post consideration of Comments, introduced the new UAE Corporate Tax Law.

The rate at which the UAE Corporate Tax is  to be applied is 9% of the Taxable Income. For this purpose, taxable income refers to  income exceeding specified limit, which is yet to be specified .

Corporate Tax in UAE is also applicable on Person treated as Non-Residents in the UAE. Such Non-resident would be taxed only in respect of the income from a UAE Permanent Establishment (PE) or income sourced from UAE (referred to as State Sourced Income).

Generally, an individual will not be liable to UAE Corporate Tax, except when they are carrying on a business or profession in the UAE, in which case the corporate tax will be applicable at the rate of 9% if they exceed the specified threshold.

The application of UAE Corporate Tax would require knowledge on the following aspects:

  • Who would be considered as Resident or Non-Resident ?
  • Which income of Resident or Non-Resident would be liable to tax ?
  • Exempt Income and Exempt entities – This would help identify if the Person is taxable, and if so, which income is taxable ?
  • Calculation of Taxable Income, i.e., which all expenses would be deductible from revenue or it shall be computed after deduction of specific expenses incurred only in the UAE.
  • Formation of Tax Groups by entities with multiple companies in the UAE. If a company is eligible to form a Tax Group, they can file one single income Tax Return for all the entities of the group.
  • Transfer Pricing, in respect of transactions between Associated Enterprises, of a multinational group.
  • Connected Person concept whereby, certain expenses may not be allowed as a deduction, if they are in excess of the prescribed limit
  • Calculation of Corporate Tax Liability, for entities who are covered within the scope of UAE CT.
  • Administration of UAE CT, like filing of return, assessment, deposit of taxes etc.
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Key Features of the UAE Corporate Tax

  • UAE CT is a Federal Tax, and will therefore apply across all Emirates. The revenue arising from such tax shall be shared between the Federal and Emirati Government
  • The Federal Tax Authority will be responsible for the administration, collection and enforcement of UAE CT.
  • The Ministry of Finance will remain the ‘Competent Authority’ for purposes of bilateral/ multilateral agreements and the international exchange of information for tax purposes.
  • UAE Corporate Tax will apply to all UAE businesses and commercial activities alike, with certain given exceptions.

UAE Corporate Tax Law (Announced on 9 Dec 2022)

Chapter One – General provisions

Article 1 – Definitions – The section defines various terms used in the UAE corporate tax law. The knowledge of these terms is very important to understand the meaning and purpose of the various provision of the Law.

Chapter Two – Imposition of Corporate Tax and Applicable Rates

Chapter Two of the UAE Corporate Tax provides that the tax will be Corporate Tax is to be paid on the Taxable Income to the Federal Tax Authority. The rates provided are as follows:

Corporate Tax Rate on Businesses:

  • If Taxable Income of the business doesn’t exceed specified threshold , the Corporate Tax will be 0 %.
  • If Taxable Income of the business exceeds the specified threshold, the Corporate Tax will be 9 %, of such excess amount

Corporate Tax Rate on Qualifying Free Zone

  • If the Taxable Income qualifies as a Free Zone by satisfying the condition, then the Corporate Tax will be 0 %.
  • If the Taxable Income doesn’t qualify as a Free Zone by satisfying the condition, then the Corporate Tax will be 9 %.

Article 2 – Imposition of Corporate Tax
Article 3 – Corporate Tax Rate

Chapter Three – Exempt Person under UAE Corporate Tax Law

  • Article 4 – Exempt Person
  • Article 5 – Government Entity
  • Article 6 – Government Controlled Entity
  • Article 7 – Extractive Business
  • Article 8 – Non-Extractive Natural Resource Business
  • Article 9 – Qualifying Public Benefit Entity
  • Article 10 – Qualifying Investment Fund
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An Exempt person under the UAE Corporate Tax Law, is a person who would generally be liable to tax, but by  virtue of the specific Article discussed above they are exempted from taxation. The exemption in some cases, is available after making an application to the FTA.

An exemption can be automatic or by application for various entities that are discussed as under : –

Entity Type of Exemption
A Government Entity Automatic Exemption
A Qualifying Public Benefit Entity Automatic Exemption
A person engaged in the Extractive Business Automatic Exemption
A Government Controlled Entity Automatic Exemption
A person engaged in the Non-Extractive Business Automatic Exemption
A Qualifying Investment Fund Exemption on application
A public pension fund, or a social security fund Exemption on application
A juridical person entirely owned and controlled by Exempt Persons Exemption on application
The Cabinet can determine any such other persons who may be exempt from UAE CT.

For details on the provision relating to exemption from Corporate Tax, for the following, please click the relevant term hereunder : –

Chapter Four – Taxable Person and Corporate Tax Base

  • Article 11 – Taxable Person
  • Article 12 – Corporate Tax Base
  • Article 13 – State Sourced Income
  • Article 14 – Permanent Establishment
  • Article 15 – Investment Manager Exemption
  • Article 16 – Partners in an Unincorporated Partnership
  • Article 17 – Family Foundation

1. Taxable Person

  • Taxable Person is a person, on whom Corporate Tax will be levied is considered as a Taxable Person under the UAE Corporate Tax Law
  • A Taxable Person can be a Resident or a Non-Resident Person.

Resident Person

A Resident is one who:

  • Is a natural person undertaking business activity in UAE, or
  • A juridical person that is incorporated incorporated or recognised or established in UAE, including Free Zone Person
  • A juridical person that is incorporated or recognised or established in foreign jurisdiction but is controlled and managed in UAE
  • Any such other person as may be prescribed by the Cabinet

Non- Resident Person

A Non-Resident is one who is not a Resident of the UAE and:

  • Has Permanent Establishment or PE in the UAE; or,
  • Derives State-Sourced Income; or,
  • Has a Nexus or connection in the UAE.

2. Corporate Tax Base

The Corporate Tax Base will be:

For a Resident

  • A natural person deriving income from UAE or outside if it relates to an activity conducted in UAE.
  • A juridical person deriving income from UAE or outside UAE

For a Non-Resident

  • In case it has a PE in the UAE, the income attributable to such PE;
  • In case such person earns State-Sourced Income, the income not attributable to a PE established in the UAE;
  • In case there exists a nexus, the income attributable to such nexus or connection in the UAE.
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3. Permanent Establishment or PE

The Permanent Establishment for a Non-Resident Person will be:

  • A ‘fixed or permanent place’ where activities are undertaken
  • A place where a person on behalf of the Non-Resident ‘habitually exercises authority’ to conduct business
  • There exists a nexus in the State as per the decision of the Cabinet

Additionally, it also consists of provisions which details State-Sourced Income, Investment Manager Exemption, Partners in an Unincorporated Partnership and Family Foundation.

Chapter Five – Free Zone Person under UAE Corporate Tax Law

  • Article 18 – Qualifying Free Zone Person
  • Article 19 – Election to be Subject to Corporate Tax

This chapter talks about the concept of Qualifying Free Zone Person, and the conditions required to be fulfilled for it:

  1. Complies with provisions under Article 34 and 55 of the UAE Corporate Tax Law;
  2. Receives Qualifying Income;
  3. Does not fall under Article 19 of the UAE Corporate Tax Law;
  4. Ensures such entity has adequate economic substance in the State.

The Minister may specify any criteria for disqualification to be the Qualifying Free Zone Person.

A Qualifying Free Zone Person will be subject to a 0% Corporate Tax rate for the tax incentive period as mentioned in the legislation but that shall not exceed beyond a period of 50 years.

Election to be subject to Corporate Tax

A Qualifying Free Zone Person may make an election to be subject to Corporate Tax at the normal rate of 9%.

Chapter Six – Calculating Taxable Income under UAE Corporate Tax Law

  • Article 20 – General Rules for Determining Taxable Income
  • Article 21 – Small Business Relief

General Rules for Determining Taxable Income:

Based on the financial statements created in line with the accepted accounting standards in the UAE, Taxable Income shall be computed as:

  1. A Taxable Income is an accounting income that has been adjusted, among other things, for the following:
    1. an unrealized gain or loss;
    2. Exempt Income;
    3. reliefs;
    4. deductions;
    5. transactions involving Related Parties;
    6. Tax Loss relief; and
    7. incentives or special reliefs approved by the Minister.
  2. A Taxable Person who prepares financial statements on accrual basis has the option of accounting for gains and losses on realization basis in relation to either of the following:
    1. assets and liabilities, subject to fair value or impairment accounting; or
    2. assets and liabilities held on capital account at the end of the Tax Period.
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Small Business Relief:

When revenue for the current Tax Period and any prior Tax Periods does not exceed a threshold that the Minister will determine, a Taxable Person who is a resident person may choose to be treated as not having generated any Taxable Income for that Tax Period. There may be other requirements that the Minister may provide if he deems fit.

Chapter Seven – Exempt Income

  • Article 22 – Exempt Income
  • Article 23 – Participation Exemption
  • Article 24 – Foreign Permanent Establishment Exemption
  • Article 25 – Non-Resident Person Operating Aircraft or Ships in International Transportation

Chapter Seven furnishes details regarding Exempt Income and provides that it includes dividend and profit distribution, Participating Interest, Foreign PE and income from Non-Resident operating aircraft and ships.

Dividend and Profit Sharing

  • For dividend and profit sharing, exemption shall be provided where the dividend or profit sharing is from a juridical person who is a Resident.
  • Similar exemption shall be provided, if the dividend and profit sharing is from a foreign juridical person having Participating Interest.

Participating Interest

  • The succeeding provision provides that income from Participating Interest will be exempt if it satisfies certain conditions like there is 5% ownership interest to hold the Participation Interest for an uninterrupted 12 months, etc.
  • Additionally, it also enlists certain incomes that shall not be considered while ascertaining Taxable Income like impairment of gains or losses. There are certain situations where this exemption to Participating Interest will not apply.

Foreign Permanent Establishment

  • Under Foreign PE, the Taxable Person has the option to not take the income and expenditure of the Foreign PE.
  • For that purpose, it will not take into account Tax Credit for the Taxable Income among other things.

Operating and Leasing Activities

  • After satisfying certain conditions, the operation of aircraft or ships in international transportation can be exempted.

Chapter Eight – Reliefs

  • Article 26 – Transfers Within a Qualifying Group
  • Article 27 – Business Restructuring Relief

Chapter Eight Reliefs of UAE’s Corporate Tax Law details the taxability of:

Transfer of Assets and Liabilities within a Qualifying Group:

  • When there is the transfer of assets of liabilities between two Taxable Persons who are part of the same Qualifying Group, then, there will be no gains or losses from such a transfer.
  • These transfers are subject to certain conditions to be fulfilled by the Taxable Persons to claim the exemption.
  • The transfer is to be calculated at the Market Value on the date of the transfer if the relief is withdrawn within two (2) years.

Business Restructuring:

  • When there is transfer of shares or ownership interest between two Taxable Persons for business restructuring, then there will be no gains or losses from such a transfer.
  • These transfers are subject to certain conditions to be fulfilled by the Taxable Persons to claim the exemption.
  • Furthermore, the relief given can be withdrawn within two years in some situations, and then, the transfer will be calculated at the Market Value on the date of the transfer for Taxable Income.

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Chapter Nine – Deductions under UAE Corporate Tax Law

  • Article 28 – Deductible Expenditure
  • Article 29 – Interest Expenditure
  • Article 30 – General Interest Deduction Limitation Rule
  • Article 31 – Specific Interest Deduction Limitation Rule
  • Article 32 – Entertainment Expenditure
  • Article 33 – Non-deductible Expenditure
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Deductible Expenditure

There are certain expenses that are incurred solely and exclusively for business activities which are not of capital nature, and are deductible in the Tax Period in which they are incurred. This includes- any expenditure used to generate Taxable Income or a share of an expenditure calculated on fair and reasonable basis, but does not include, expenditure incurred in connection with Taxable Person’s business, cost incurred in exempt income, losses not attached to Taxable Person’s business or as per the Minister’s recommendation.

Interest Expenditure

30%(max.) deduction is provided in Net Interest Expenditure from Accounting Earnings. Taxable Person’s Interest Expenditure is the difference between the Interest Expenditure and Taxable Interest Income incurred during Tax Period. No deduction in the Interest incurred by the related party.

Entertainment Expenditure

Deduction of 50% is allowed in the expenditure incurred in entertainment, amusement or recreation of client, shareholder, supplier or other business partners.

Chapter Ten – Transactions with Related Parties and Connected Persons

Article 34 – Arm’s Length Principle
Article 35 – Related Parties and Control
Article 36 – Payments to Connected Persons

Chapter Ten primarily details that:

  • The arrangements and transactions between Related Parties should be in consonance with the Arm’s Length Principle as per OECD Guidelines.
  • It lists down the Transfer Pricing methods that can be used for ascertaining Arm’s Length Price in a transaction.
  • Additionally, it prescribes the provisions for adjustments in the Transfer Price by the Federal Tax Authority under certain circumstances.
  • Details the treatment of payments made to Connected Person.
  • Lastly, it comprehensively defines ‘Related Party’, ‘Connected Person’ and ‘Control’.

Chapter Eleven – Tax Loss Provisions under UAE Corporate Tax Law

  • Article 37 – Tax Loss Relief
    • Tax Loss can be set off in the subsequent Tax Periods but not above the amount of seventy five percent (75%).
    • It also prescribes situations when Tax Loss cannot be claimed like when the loss had already incurred before the commencement of Corporate Tax.
  • Article 38 – Transfer of Tax Loss
    • It provides conditions which are required to be fulfilled so as to transfer Tax Loss from one Taxable Person to another.
  • Article 39 – Limitation on Tax Losses Carried Forward
    • Lastly, it provides that Tax Losses carried forward will be subject to limitation if the same person owns ownership interest of fifty percent (50%) or conducts the same or a similar business activity.
    • Such limitation will not be applicable where the shares of the Taxable Person are listed on the Recognised Stock Exchange.

Chapter Twelve – Tax Group Provisions

  • Article 40 – Tax Group
  • Article 41 – Date of Formation and Cessation of a Tax Group
  • Article 42 – Taxable Income of a Tax Group
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Tax Group:

If all of the following requirements are satisfied, a resident person (i.e., a parent company) may submit an application to the FTA to form a Tax Group with one or more additional resident persons:

  1. The residents are legal individuals;
  2. Neither the parent company nor the subsidiary is an exempt person or a Qualifying Free Zone Person;
  3. Neither the parent company nor the subsidiary is a Qualifying Free Zone Person;
  4. The parent company and the subsidiary have the same financial year and prepare their financial statements in accordance with the same accounting standards.

The CT Law specifies the circumstances under which a subsidiary may join an existing Tax Group, cease to be part of the Tax Group, and the date on which the Tax Group shall cease to exist. A Tax Group is recognised as a single Taxable Person.

Taxable Income of a Tax Group:

  • The parent company shall eliminate transactions between the parent company and each subsidiary that is a member of the Tax Group and consolidate the financial results, assets, and liabilities of each subsidiary.
  • When a new subsidiary joins the Tax Group, or departs the Tax Group, or when the Tax Group is terminated, specific regulations will apply with respect to the use of any unutilized tax losses of the new subsidiary.

Chapter Thirteen – Calculation of Corporate Tax Payable

  • Article 43 – Currency
  • Article 44 – Calculation and Settlement of Corporate Tax
  • Article 45 – Withholding Tax
  • Article 46 – Withholding Tax Credit
  • Article 47 – Foreign Tax Credit

Currency:

The Tax Payable i.e., the tax liability incurred under the UAE CT Law has to be paid in AED.

Calculation and Settlement of Corporate Tax:

Corporate Tax Payable can be paid only in the following manner:

  • First by utilising the Withholding Tax Credit that the Taxable Person is eligible for.
  • Then to the extent there is any residual amount left, utilising the Taxable Person’s available Foreign Tax Credit.
  • After which, in case there is any further residual amount left, one has to apply credits or any other form of relief available with it.
  • Any remaining tax liability shall have to be settled as per provisions of Article 48.

Withholding Tax:

The following incomes are subject to withholding tax at the rate of 0% –

  • Any income not attributable to a Permanent Establishment of the Non-Resident Person in the State
  • Any other income specified by the Minister

Withholding Tax Credit:

The Corporate Tax due under Article 3 of the UAE Corporate Tax Law may be reduced by the Withholding Tax Credit attributable to that Tax Period.

Foreign Tax Credit:

  • The amount of the Foreign Tax Credit for the applicable Tax Period may be deducted from the Corporate Tax.
  • The quantum of Foreign Tax Credit cannot be greater than the amount of Corporate Tax owed on the relevant revenue.
  • In order to claim a Foreign Tax Credit, a Taxable Person must maintain all relevant records.
  • Any unused Foreign Tax Credit cannot be carried forward or be caried back.

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Chapter Fourteen – Payment and Refund of Corporate Tax

  • Article 48 – Corporate Tax Payment
  • Article 49 – Corporate Tax Refund

Corporate Tax Payment:

Corporate Tax Payable must be settled within 9 months from the completion of the relevant Tax Period, or any date specified by the Authority.

Corporate Tax Refund:

A Taxable Person may claim Tax Refund if –

  1. Available Withholding Tax Credit exceeds Corporate Tax Payable
  2. The Authority thinks that tax has been paid in excess of what was owed
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Chapter Fifteen – Anti-Abuse Rules

  • Article 50 – General Anti-abuse Rule

Anti-Abuse Rules have been adopted so as to target the transactions and arrangements that lack any valid commercial reasons to get Corporate Tax advantage.

Chapter Sixteen – Tax Registration and Deregistration under UAE Corporate Tax Law

  • Article 51 – Tax Registration
  • Article 52 – Tax Deregistration

Tax Registration

  • The Taxable Person must register in a manner, form and within the timeline specified by the Authority.
  • The Authority will have discretion to with respect to the registration of a Taxable Person

Tax Deregistration

  • After the business or business activity ends, whether by dissolution, liquidation, or another means, the Taxable Person has to fill a deregistration form in the format specified.
  • A Taxable Person may not be deregistered until he has submitted all the required documents.
  • The Authority must deregister the property if the Tax Deregistration Application is approved.
  • If any of the requirements for Tax Deregistration as mentioned under this Article are violated, then the Authority on its discretion may deregister the Taxable Person on later of the below-mentioned dates:
    • the final day of the Tax Period on which the Authority became aware that this provision was not complied with;
    • the time when the Taxable Person no longer exists.

Chapter Seventeen – Tax Returns and Clarifications under UAE Corporate Tax Law

  • Article 53 – Tax Returns
    • The Tax Return is to be filed within nine (9) months from the date of the end of the relevant Tax Period.
    • The provision provides for certain specific information to be provided while filing the Tax Return.
    • The Minister of Finance can prescribe the manner of filing the Tax Return in case of national security or public interest.
  • Article 54 – Financial Statements
    • The Federal Tax Authority can request for submission of Financial Statements of the Taxable Person.
    • Certain Taxable Persons may be asked by the Minister to maintain Financial Statements.
  • Article 55 – Transfer Pricing Documentation
    • The Taxable Persons have to give disclosure of their transactions with Related Parties or Connected Persons to the Federal Tax Authority.
    • As prescribed by the Minister, the Taxable Person may be asked to maintain a ‘Master File’ and ‘Local File’ to be submitted within thirty (30) days of request by the Authority.
  • Article 56 – Record Keeping
    • After the end of the relevant Tax Period, the records are to be maintained for seven (7) years.
    • The Exempt Persons are to maintain records of their status as Exempt Person for a period of seven (7) year
  • Article 57 – Tax Period
    • A Tax Period is one for which Tax Return is to be filed. It will be as per the Gregorian Calendar of twelve (12) months.
    • An application can be made for change in the start date, end date or the Tax Period by the Taxable Person to the Authority.
  • Article 58 – Change of Tax Period
  • Article 59 – Clarifications
    • Clarifications can be asked related to the conclusion of Advance Pricing Agreement or the application of the UAE’s Corporate Tax Law.
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Chapter Eighteen – Violations and Penalties

  • Article 60 – Assessment of Corporate Tax and Penalties

Chapter Eighteen provides that:

  • The Taxable Person can be subjected to Corporate Tax Assessment
  • The Taxable Person can also request for Corporate Tax Assessment to the Federal Tax Authority
  • The penalties and fines will be as per the Tax Procedure Laws.

Chapter Nineteen – Transitional Rules

  • Article 61 – Transitional Rules

Chapter Nineteen talks about Transitional Rules. These provide:

  • The opening balance sheet should be the closing one. It will be drawn for financial reporting purpose as per the accounting standards on the last date of the previous Financial Year,
  • The opening balance sheet should be in consonance with the universal principle of Arm’s Length Price;
  • Any additional rules can be prescribed by the Cabinet,
  • The anti-abuse provisions of Article 50 will be applicable for transactions entered on or after the UAE Corporate Tax law’s publication.

Chapter Twenty – Closing provisions under UAE Corporate Tax Law

  • Article 62 – Delegation of Power
  • Article 63 – Administrative Policies and Procedures
  • Article 64 – Cooperating with the Authority
  • Article 65 – Revenue Sharing
  • Article 66 – International Agreements
  • Article 67 – Implementing Decisions
  • Article 68 – Cancellation of Conflicting Provisions
  • Article 69 – Application of this Decree-Law to Tax Periods
  • Article 70 – Publication and Application of this Decree-Law

Chapter Twenty provides for the closing provisions. It details the delegation of powers, administrative policies and procedures, cooperation with the Authority, revenue sharing, international agreements, implementing decisions, etc. It also states that:

  • The UAE’s Corporate Tax law will begin from the Tax Period starting on or after June 1, 2023;
  • The Corporate Tax law will have overriding effect in case there are conflicting provisions,
  • The publication will be in the Official Gazette of the UAE Federal Government, and

The application of the provisions of the Corporate Tax Law will be within fifteen (15) days of the publication.

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Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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FAQs

What is the UAE corporate tax rate ?

The standard UAE corporate tax rate is 9% , for taxable income exceeding AED 375,000

What is the difference between UAE corporate tax rate and dubai corporate tax rate ?

There is no difference between UAE corporate tax rate and dubai corporate tax rate. Both refer to the same tax, and are applicable at 9% of taxable income exceeding AED 375,000

What will be the tax rate applicable on income of an individual ?

Income of the individual, in the nature of salary , capital gains , dividend etc, whether received from a UAE company or a foreign company will be subjected to a 0% UAE Corporate tax. However, where an individual is carrying out business or commercial activities in the UAE, the profits of such business will be liable to tax at 9% of income exceeding AED 375,000 .

Would the profit of a UAE branch of a foreign company, be liable to United Arab Emirates corporate tax ?

The branch of a foreign company in the UAE, will be treated as a permanent establishment,  and will therefore be liable to UAE corporate tax at the rate of 9% . However, in case the Tax Treaty of the UAE with the country of head office of the branch , provides for any preferential treatment, the same may apply and the income may be taxable at a lower tax rate . More guidance on this shall be available once the draft law is introduced