UAE to Introduce Federal Corporate Tax from June 2023

Other key elements of the announcement

Foreign investors who do not carry on business in the UAE will not be subject to corporate tax.

There are no withholding taxes on domestic and cross-border payments.

UAE businesses will be exempt from paying tax on capital gains and dividends received from their qualifying shareholdings.

Corporate tax will not apply to qualifying intra-group transactions and reorganizations.

In order to give relief from double taxation, foreign taxes will be allowed to be credited against UAE corporate tax payable.

The corporate tax regime provides generous loss utilization rules and will allow UAE groups to be taxed as a single entity provided certain conditions are met or to apply group relief in respect of losses and intragroup transactions and restructurings. Besides, businesses will not be required to make advance tax payments or prepare provisional tax returns.

Transfer pricing and documentation requirements will apply to UAE businesses with reference to the OECD Transfer Pricing Guidelines.

Key takeaways

The introduction of the new corporate tax regime is bound to help UAE achieve its strategic ambitions and incentivise businesses to establish and expand their activities in the country. The move is expected to bring UAE in line with other competitive economies around the world.

However, the potential implications can be far-reaching. But for now, the tax and finance teams need to focus on developing a roadmap to prepare for the implementation of corporate tax. For that, it is imperative to get a deeper and thorough understanding of the rule and laws pertaining to corporate tax in order to completely assess the implementation plan. This might require many structural and organizational changes such as a change in legal structure, tax function, business model, accounting, contracting and transfer pricing, etc. Our tax experts at IMC Group can help you assess the potential impact of corporate tax in the UAE and how it may affect your business. As a part of our services, we can assist you with the following:

• Access the qualitative impact and perform readiness assessment covering systems, governance and technical aspects
• Access the quantitative impact and perform modeling work
• Offer knowledge sharing and conduct training for your in-house tax and finance teams
• Offer implementation support with respect to tax, accounting and systems perspectives.

There will be further announcements from the Ministry of Finance toward the middle of the year to help businesses prepare for the introduction of corporate tax and become fully compliant.

Keep watching this space for more updates on corporate tax in the UAE.