UAE introduces ‘Corporate Tax Law’; 9% Corporate Tax applicable from June 01, 2023

Federal Decree-Law No. 47 of 2022

The United Arab Emirates (UAE) Ministry of Finance has published Federal Decree-Law No. 47 of 2022 providing the legislative framework for corporate tax on business profits in the UAE.

UAE Corporate Tax (UAE CT) will become effective for financial years starting on or after 1 June 2023. It shall apply to:

(a) Individuals who are engaged in a business or business activity in UAE through an unincorporated partnership or sole proprietorship;

(b) Juridical persons incorporated in the UAE;

(c) Juridical persons effectively managed and controlled in the UAE; and

(d) Foreign juridical persons that have a permanent establishment in the UAE.

The decree provides that the financial statements of businesses should be prepared in accordance with accounting standards accepted in the UAE. Taxpayers should prepare financial statements on an accrual basis unless they are permitted to use the cash basis of accounting instead.

Further, in determining Taxable Income, transactions and arrangements between Related Parties must meet the arm’s length standard. The arm’s length result of a transaction must be determined by applying one or a combination of the prescribed transfer pricing methods.

The corporate tax shall be imposed on the Taxable income at the following rates:

(a) For individuals and juridical persons – 9% on Taxable Income that exceeds the specified amount (to be decided by cabinet).

(b) In the case of Qualifying Free Zone Persons – 9% on taxable income that does not meet the qualifying income definition.

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