In order to cultivate future entrepreneurs and innovators, the UAE has strategically positioned itself as a pro-business hub. The nation offers unparalleled access to state-of-the-art infrastructure, technological advancements, complete foreign ownership, and a tax-free environment, making it an attractive destination for professionals seeking exciting career prospects. Recognizing the importance of aligning with international standards and complying with Pillar 2 of the OECD’s Global Minimum Tax Plan, the Ministry of Finance of the UAE introduced Federal Decree-Law No. 47 of 2022. This decree establishes the legal framework for corporate tax on commercial profits within the UAE.
Commencing from the first fiscal year starting on or after June 1, 2023, individuals and businesses with taxable income will be required to pay a 9% corporation tax. As this marks the first time the UAE has implemented corporate tax, it is crucial to analyze how it will impact both individuals and businesses in the future.
Corporate tax, also known as business profit tax or corporate income tax, is a form of direct tax levied on the net profits or earnings of corporate entities and other legal entities involved in business activities. The Ministry of Finance (MOF) has provided a set of significant recommendations that serve as guidelines for the implementation of corporate tax in the UAE, along with the announcement of the new tax regime.
With the exception of resource extraction, all business and commercial activities in the UAE are subject to the UAE’s corporate tax. The Federal Tax Authority (FTA), established in 2016, is responsible for managing, collecting, and enforcing the UAE’s corporate tax system. On December 9, 2022, the UAE introduced a federal decree on corporate and company taxation, setting a 9% tax rate on taxable profits exceeding AED 375,000 ($102,000). Profits below AED 375,000 are therefore taxed at 0%, in line with the government’s efforts to support startups and small to medium-sized businesses.
It’s important to note that freelancers in the UAE and other self-employed independent contractors are also subject to the corporate tax regime if their income surpasses the AED 375,000 threshold. However, there are specific scenarios that apply to freelancers regarding corporate tax:
Under the corporate income tax legislation in the UAE, certain scenarios grant exemptions to individual or freelancer profits earned in their personal capacity. These include:
Business owners have always regarded the UAE as a tax-free oasis. By introducing the new corporate tax regime, the UAE intends to follow worldwide best practices in developing a leading global hub for businesses while advancing the nation’s strategic objectives for further growth. This necessitates that organizations and freelancers start preparing right away and engage the services of tax experts like MARKEF. Whether it’s for the deployment of countermeasures, training personnel, or formulating a compliance policy, our professionals can handle your company’s accounting and auditing demands and assist you in becoming UAE corporate tax ready. If you are a freelancer having any confusion regarding the corporate tax on your income, get in touch with MARKEF professionals for your guidance.
With our assistance, you can ensure compliance and reduce your tax liability. For a FREE CONSULTATION, get in touch with our tax professionals today