Corporate tax applicable as of June 1, 2023
A publication on the government website dated December 9, 2022 provided some details about the new legislation in the United Arab Emirates, concerning a “Corporate tax” or in French a tax on companies. If it is completely excluded to apply a tax on natural persons, the appearance of a corporate tax had been expected for nearly two years and has been enhanced with the arrival of VAT at a rate of 5% since 2019 in the Emirates. Thus, with regard to corporate tax, the figure of 9% was already known, the government laid down some contours without answering all the questions about the system. Several points seem unresolved for the moment, however, these few gray areas will undoubtedly find answers over time, particularly through the government website. In the meantime, the elements given can already lead us to a brief presentation of the future regime in order to draw a first summary.
I – Presentation of the new corporate tax regime in the United Arab Emirates
A – The effectiveness of corporate tax in Dubai
At first sight, this new regime should be effective from June 1, 2023, for more understanding as to the effectiveness of the system for companies, the government gives as an illustration a company starting its fiscal year on July 1, 2023 and the ending on June 30, 2024: the latter will therefore be subject to the Corporate tax on the one hand, but also to the new declaration regime. Another illustration given, in the case of a company starting its fiscal year on January 1, 2023, i.e. before the start of the new legislation in force on June 1, 2022, will not be subject to corporation tax before January 1 2024. The new regime will be in place in June 2022 is obviously not retroactive, and therefore cannot apply to people who started an activity in January 2022, as the United Arab Emirates had no tax. Regarding its application, a tax ceiling is set at 375,000 AED, or approximately 96,000 euros. Beyond this amount, all companies will be taxable at 9%. To summarize, if the income received is equal to 1,000,000 AED, the portion above 375,000 AED will be taken into account, i.e. in this case 625,000 AED, of which the taxpayer will have to pay 9% of this sum, i.e. 56,250 AED, an amount that can be reduced by various tax credits.
B- Regarding companies subject to corporate tax in Dubai
Obviously, these are legal persons whose management headquarters are established in the United Arab Emirates, individual entrepreneurs, i.e. people carrying out their activity as freelancers. However, in the case of non-residents who have, under the tax treaty, established a stable residence in the United Arab Emirates, will they also be subject to this income tax, with regard to their income from the United Arab Emirates. With regard to foreign companies, whose management is done from the United Arab Emirates, could be considered as being tax residents as for their income from Emirati sources. However, if the criteria seem broad, some companies established in the free-zone will be able to obtain a tax rate equal to 0%.
II – Mechanisms of exemptions and controls of the payment of corporation tax in the United Arab Emirates
A- The exemption of free-zone companies in the Emirates (Free Zone)
While some companies in the free-zone seem to be able to benefit from a specific zero-rate regime, the government seems to let it appear that this exemption will be based on income without however being specific as to the amount to which the zero tax rate will apply. . However, the government seems to indicate a right of option with regard to corporate tax in the free zones, the latter must nevertheless meet the criterion of maintaining economic substance (see the ESR law in particular for holding companies and subsidiaries ). Thus, other exemptions are provided for, particularly in terms of dividends and capital gains. (Participation). In addition, a new system of deductibility of expenses will apply, likely to cause a reduction in tax. In addition, details will be provided regarding exemptions related to free-zones.
B- Control and sanctions
This new regime requires the taxpayer to register with the government beforehand, in order to obtain a tax number from the administration. Thus, the companies concerned will have to fill in a declaration corresponding to their profits, this one will have to be returned (information which can be modified soon) during the last three before the end of the current fiscal year.
Akram Cheik, Lawyer
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