INSITE - UAE - August 2023

UNITED ARAB EMIRATES

CORPORATE TAX IN UAE FROM JUNE 23

Sector: Tax/Finance

Summary: The UAE has introduced a 9% corporate tax from June 1, 2023, for taxable businesses. This decision has created interest among businesses and tax professionals. The UAE will be the 4th GCC country to implement such a tax.

The purpose of this tax is to strengthen the UAE's position as a global business and investment hub and to support its development and transformation goals. It also ensures compliance with international tax transparency standards and prevents harmful tax practices.

Since corporate tax is new in the UAE, it's essential for businesses to understand it better. To address common questions, information has been provided.

In detail: (1) Businesses with taxable net profit above 375,000 AED must pay CT (Corporate Tax). (2) The corporate tax rate is 9% of the net profit. For small businesses and startups with net profits up to 375,000 AED, the rate is 0%. (3) The Corporate Tax is effective from the financial year commencing on or after 1st June 2023. (4) Individuals, certain foreign investors, free zone businesses complying with regulations, capital gains, and dividends from qualifying shareholdings, and qualifying intragroup transactions and restructurings are exempt from Corporate Tax. (5) If taxpayers try to exploit multiple instances of the 0% tax rate on amounts exceeding AED 375,000, they may face the general anti-abuse rules of the Corporate Tax law (Article 50 of Federal Decree-Law No. 47 of 2022).

When applying the general anti-abuse rules, the FTA will consider various factors:

(1) The legitimate commercial purpose of the arrangement.

(2) Whether the business or activity remains largely unchanged after the arrangement.

(3) The financial, economic, and organizational relationship of the parties involved in the arrangement.

Impact Assessment: The decisions provide a major advancement in understanding the Free Zone regime within the UAE CT framework. For businesses operating in Free Zones, it is crucial to assess whether their activities fall under the Qualifying Activities and Excluded Activities lists. This assessment will be the first step in their UAE CT analysis. Additionally, if a business has multiple income streams, it should consider the de minimis threshold computations. Failing to meet this threshold could result in the entire income becoming subject to a 9% CT rate. Overall, these Decisions will have a significant impact on how businesses plan and manage their tax liabilities within the UAE Free Zones.

Key Links:

https://mof.gov.ae/corporate-tax/

EMIRATISATION

Sector: Employment

Ministry: Ministry of Human Resources & Emiratisation (MoHRE)

Summary: The UAE Government has introduced regulations to boost Emiratisation in the workforce. Their main goal is to increase the number of UAE nationals in private sector jobs. Under the new law, private sector companies must hire at least 2% Emirati employees annually. This Ministerial Decision No. 279 of 2022 will have a significant impact on business policies and recruitment strategies.

In detail: Companies with more than 50 employees are required to maintain a 2% Emiratisation rate for skilled jobs. Failure to comply will result in financial penalties, with a monthly fine of AED 6,000 for each UAE national not appointed. These penalties are effective from January 2023 and will be collected as a single payment.

If an Emirati employee resigns, the company must find a replacement to meet the Emiratisation target. Companies that achieve the target will receive incentives, such as an 80% discount on Mohre fees. The monthly penalty will increase annually by AED 1,000 until 2026. Private sector firms should aim for a 10% growth rate in their employment targets.

Key Links:

https://u.ae/en/information-and-services/jobs/emiratis-employment-in-private-sector