Federal Decree-Law No. 47 of 2022
The Federal Decree-Law No. 47 of 2022, published by the Ministry of Finance of the United Arab Emirates (UAE), establishes the legal basis for corporate tax on business profits in the UAE. With effect from June 2023, the UAE is planning to implement a corporation tax structure with a projected standard rate of 9%. A taxable person is a company that is incorporated in the UAE, a foreign legal entity that has a permanent establishment there or is tax resident there, a branch of a foreign or UAE company, or a taxable natural person who conducts business in the UAE through a sole establishment or as an individual partner in an unincorporated partnership. Despite the fact that the regime would use widely recognized principles rather than introducing novel ideas in order to make it easily understandable, there are still a number of unanswered problems. It is intended that after the draught legislation is published, more detail will become apparent. Planning is crucial for concerned parties in the interim. In effect for fiscal years beginning on or after 1 June 2023 is the UAE Corporate Tax (UAE CT). It will be relevant to:
(a) People who operate a business or participate in commercial activity in the UAE as a solo proprietor or in an unincorporated partnership;
b) Legal individuals incorporated in the UAE;
(c) Juridical individuals who are successfully governed and under control in the UAE; and
(d) Foreign juridical entities with a physical presence in the UAE.
The decree mandates that enterprises’ financial statements be prepared in conformity with accepted accounting principles in the UAE.
Unless they are allowed to utilize the cash basis of accounting instead, taxpayers should generate financial statements on an accrual basis.
Transactions and agreements between Related Parties must also adhere to the arm’s length principle when calculating Taxable Income. One or more of the recommended transfer pricing techniques must be used to determine the transaction’s arm’s length outcome.
The following rates for company tax will be applied to Taxable Income:
(a) For individuals and legal entities, 9% of taxable income over a certain threshold (to be decided by cabinet).
(b) For Qualifying Free Zone Persons, 9% of taxable income that does not fall under the definition of Qualifying Income.