In a pivotal shift from its traditional tax-free business environment, the United Arab Emirates (UAE) has introduced substantial changes to its corporate tax laws. The updated regulations establish a 9% tax rate on corporate profits above AED 375,000, and a 0% tax rate on what has been termed as 'Qualifying Income'.
'Qualifying Income' includes income derived from transactions with other Free Zone Persons, unless it originates from the so-called 'Excluded Activities'. The definition also covers income from transactions with Non-Free Zone Persons, but only in relation to 'Qualifying Activities' that do not fall under the Excluded Activities. Any other income meeting certain de minimis requirements also qualifies.
The law now categorizes Taxable Persons based on global tax regimes. Resident Persons are to be taxed on both domestic and foreign-source income, while Non-Residents will only be taxed on income derived from the UAE.
In a bid to counterbalance potential double taxation and support certain sectors, the UAE authorities have provided exemptions and relief measures. These include Government entities, Extractive Businesses, and Non-Extractive Natural Resource Businesses which are all exempt from Corporate Tax (CT). Further, certain types of income will not be subject to CT, and tax-resident entities generating less than AED 3,000,000 per tax period may qualify for Small Business Relief under Ministerial Decision No. (73) of 2023.
Furthermore, individual taxpayers, both residents and non-residents, will now be subject to CT if their business turnover or gross income exceeds AED 1,000,000 within a calendar year.
Moving forward, entities and specific individuals will need to register for Corporate Tax and obtain a 'Tax Registration Number (TRN)'. While the deadline has not been specified yet, it is crucial to register before the first tax filing.
Additionally, it is now necessary to maintain accurate bookkeeping, accounting, and potentially audited financial statements. Timely submission of Corporate Tax filings is also required. Most businesses will need to submit their filings within nine months from the end of the first tax period – for the 2024 financial year, this means a deadline by the end of September 2025.
The latest tax reforms underscore the UAE's commitment to regulatory compliance and constitute a significant change in the country's tax landscape. As these changes take effect, understanding the modifications and seeking professional advice to navigate these regulatory changes is essential.