All you need to know about corporate tax relief in the UAE

Published on 25 September 2023

Corporate taxation reaffirms the UAE’s commitment to meet international tax standards

The UAE has been recognised for long as a tax haven and a global business hub, attracting businesses and professionals from across the world. However, the financial year starting on or after June 1, 2023, witnessed a significant transformation in the UAE’s fiscal policy with the launch of corporate tax (CT). The UAE Ministry of Finance published Federal Decree-Law No 47 of 2022 providing the much-awaited legislative framework of CT on business profits. Introduction of the CT regime reaffirms the UAE’s commitment to meet international standards for tax transparency and preventing harmful tax practices.

Despite the applicability of CT, the UAE still stands out as a tax-friendly destination with a host of CT reliefs for individuals and corporates. These reliefs would continue to make it a favourable destination for businesses seeking to expand or establish their presence in the region.

Significant reliefs have been provided to individuals, whereby salary income and income from investments by an individual will not be subject to CT in the UAE.

Also, the Qualifying Free Zone entities are privileged with 0 per cent CT rate, thereby including such entities within the ambit of CT law without imposing any tax burden.

Additionally, various ministerial decisions have been issued, aiming at providing reliefs to small businesses. These decisions intend to support start-ups and other small or micro businesses by reducing their CT burden and compliance costs.

The concept of tax group allows ample flexibility to large businesses with multiple entities and reduces compliance by filing a single consolidated return, eliminating intra-group transactions resulting in reduced transfer pricing (TP) compliances. This also allows business to set off the losses of any entity which is a part of the tax group.

In order to keep the UAE CT regime at par with international standards, the benefit of foreign tax credit is also available for foreign taxes paid on a UAE taxable person’s income.

Apart from the other reliefs provided under the law, barring Bahrain, the UAE has introduced the lowest CT rate within the GCC region at a standard rate of 9 per cent, which is also one of the lowest rates globally.

Whilst the UAE CT law brings a number of reliefs on the table, businesses must embrace themselves for this paradigm shift and prepare for compliance and a strict regime of governance. Corporate tax at the rate of 9 per cent is a major policy shift but the UAE’s CT reliefs and business-friendly policies will still continue to grant it the status of one of the favourable destinations for businesses seeking to expand their operations or establish their presence in the Middle East. The relief from individual income tax, favourable VAT treatment for exports, extensive DTAs and the availability of free zones, all contribute to a tax-efficient environment that fosters growth and prosperity. Combined with its strategic location, strong legal framework, and political stability, the UAE continues to be a beacon for businesses looking to thrive in the global market. As the world of business evolves, UAE’s commitment to remaining a competitive and welcoming destination for enterprises remains unwavering.