Ministry of Finance Issues Explanatory Guide for Corporate Tax Law

The Ministry of Finance has issued an explanatory guide to Federal Decree-Law No. 47 of 2022 on Corporate and Business Tax "Corporate Tax Law", which lays the legislative basis for imposing a federal tax on corporate and business profits, which applies to fiscal years starting on or after June 1, 2023.

The guide provides a detailed explanation of each article and the intended purpose of the provisions of the law and the relevant executive decisions (issued as of April 30, 2023), and can be used to interpret the Corporate Tax Law and how to apply its provisions.

H.E. Younis Haji Al Khoori, Undersecretary of the Ministry of Finance, said: "The Ministry of Finance is keen to provide clarity and appropriate guidance to those who are or may be subject to corporate tax in the UAE, so that they can understand the provisions of the law and why it is issued. This illustrative guide reflects the Ministry's ongoing commitment to supporting taxable persons and providing them with the necessary information before the law comes into effect."

The guide includes clarifications on the various benefits of the corporate tax system in the UAE, which will encourage business activities and reduce compliance burdens on taxable persons, foremost of which is the introduction of a corporate tax of 0% for taxable income up to AED 375,000, and the implementation of a corporate tax of 0% for eligible persons residing in the free zone, in recognition of the importance of free zones in supporting the development of the UAE.

Among the advantages of the system is the provision of financial and administrative facilities to support startups and small businesses, as eligible businesses will not incur any tax and will benefit from simplified tax return requirements when their revenue limit reaches AED 3,000,000.

The guide explains other advantages, which are the setting of a 0% intermittent tax rate at source on foreign and domestic payments, the exemption of foreign branch profits, dividends, capital gains realized locally and foreign shares from corporate tax when the relevant conditions are met, the foreign tax balance resulting from foreign income arising that is not exempt from tax to avoid double taxation, in addition to targeted exemptions for some entities subject to corporate tax locally at the level of the emirate or considered important to support The social fabric of the UAE.

These exemptions include government agencies, investment funds, pension or social security funds, public benefit agencies, and companies engaged in the extraction of natural resources.

The guide provides a detailed explanation of the requirements and limits of transfer pricing documents according to international benchmarking to ensure that compliance burdens on SMEs are minimized.

With the possibility of benefiting from tax losses in future tax periods without being bound by time conditions, and the possibility of posting tax losses between tax group companies, when the relevant conditions are met, where groups in the UAE can pay and file corporate tax returns on a consolidated basis as a single taxable entity to ensure administrative efficiency and simplification, facilities represented in transfer within the group and business restructuring transactions, when the relevant conditions are met, and the possibility of treating family
businesses. It is pledged as tax-transparent to prevent wealth and personal investment income from being taxed by corporations, as well as aligning the calculation of taxable income with accounting profits, while limiting tax adjustments to determine payable corporate tax.

The UAE will apply corporate tax at a basic rate of 9% on taxable income exceeding AED 375,000, one of the lowest and most globally competitive corporate tax rates and in line with the UAE's goal of maintaining its position as a leading destination for business and investment.

The guide will be available on the Ministry of Finance and Federal Tax Authority websites, and can be updated periodically.