CORPORATE INCOME TAX (CIT)
UAE Corporate Income Tax (CIT) Overview
The UAE, traditionally known for its tax-friendly environment with no federal corporate income tax, has introduced a new CIT regime, effective from June 2023. This major policy shift aims to align the UAE with international tax standards, improve transparency, and diversify government revenue.
Tax Rate and Thresholds
The standard CIT rate is set at 9% on taxable income exceeding AED 375,000. Income below this threshold is taxed at 0%, encouraging startups and small businesses. This tiered system seeks to balance revenue collection with economic growth.
Implications
The introduction of CIT aims to modernize the UAE’s tax landscape, attract responsible foreign investment, and promote transparency. Businesses must adapt by reviewing their structures, ensuring compliance, and maintaining accurate records.
Overall, the UAE's move toward a formal CIT regime marks a new chapter in its economic development, fostering a more competitive and compliant business environment.
Scope and Applicability
The UAE CIT applies primarily to companies operating within the country, including those incorporated locally and foreign businesses with a permanent establishment. Exemptions include natural persons engaging in business (unless they choose to be taxed), charitable organizations, and certain free zone entities that meet specific conditions.
Tax Calculation and Compliance
Taxable income is calculated based on net profit, with deductions allowed for operational expenses, salaries, and depreciation following international accounting standards. Companies must register with the Federal Tax Authority (FTA), file annual returns, and maintain proper financial records. The UAE has adopted digital systems to streamline compliance, with penalties for violations.
Additional Regulations
The regime includes transfer pricing rules aligned with OECD guidelines, preventing abuse through related-party transactions, and incorporates anti-avoidance measures. For UAE residents owning offshore entities classified as Controlled Foreign Companies (CFCs), profits may also be taxed to deter profit shifting.