The UAE Unveils New Corporate Tax Legislation, Set to Take Effect on June 1, 2023

On Friday, the United Arab Emirates (UAE) government unveiled its new corporate tax law, which is now accessible on their official website. This marks a significant milestone in the implementation of corporate tax in the UAE. 

Under this fresh legislation, businesses and corporations generating taxable profits exceeding AED 375,000 ($102,000) will be obligated to pay a standard 9% tax rate, effective from June 1, 2023, in accordance with the earlier announcement made at the beginning of this year.

Entities with taxable profits falling below this threshold will be subject to a 0% corporate tax rate. The UAE Ministry of Finance anticipates that this corporate tax regulation will solidify the country’s position as a prominent global business and investment hub. It is expected to contribute to the nation’s developmental goals, foster tax transparency, and prevent irregular practices.

You can access the UAE corporate tax law through ‘Federal Decree-Law no. 47 of 2022’ on their official website, which can be downloaded from the Ministry of Finance’s website.

Corporate Tax Limit and Applicability in UAE

How is Corporate Tax in UAE Calculated?

When will this corporate tax take effect? The UAE Ministry of Finance has announced that the new tax regime will be applicable for financial years commencing on or after June 1, 2023.

For businesses or entities with fiscal years commencing on July 1, 2023, and ending on June 30, 2024, the new tax will be due on July 1, 2023. If a business’s fiscal year begins on January 1, 2023, and ends on December 31, 2023, it will become subject to UAE Corporate Tax starting on January 1, 2024, which corresponds to the initiation of the first financial year after June 1, 2023.

Key takeaways and recommended actions for businesses:

The release of the corporate tax law signifies a crucial development for businesses. Financial statements will now play a central role, as they determine the basis for calculating a business’s corporate tax liability.

To prepare for the corporate tax in the UAE, businesses should consider the following steps:

1. Strategic Planning: Companies should plan ahead and prepare for the forthcoming corporate tax regulations, as they will significantly affect business operations.

2. Financial Assessment: Review your previous financial records to determine your business’s eligibility for corporate tax.

3. Robust Accounting Software: Given the increased importance of financial reports, ensure that your business employs robust accounting software to guarantee accuracy and compliance.

4. Team Training: Provide training and updates to your team regarding the corporate tax rules.

5. Contractual Obligations: Assess how the UAE corporate tax might impact your business’s obligations and liabilities under contracts with customers and suppliers.

6. Financial Statement Compliance: Understand how corporate tax implications will affect your books of account and financial statements, ensuring compliance with the new regulations.