On December 9, 2022, the UAE Tax Authority released Federal Resolution Law No. 47 of 2022 mostly on the Taxation of Businesses and Commerce i.e, corporate tax in UAE. The Corporate Tax Legislation is the most important federal tax law passed in the UAE, and it clarifies many areas of the tax system that had been confusing before. In the meantime, it raises many concerns in the minds of interested parties such as how wide is the scope of this law, or will companies owned by GCC or UAE nationals will fall under this scope. This article will discuss this very concern;
Gulf Cooperation Council Corporate Tax Rates v/s the World
To understand tax implementation by the UAE on the entities which are owned by the UAE nationalists and by the GCC (Gulf Cooperation Council), you should know the following members of the GCC i.e, the United Arab Emirates, Saudi Arabia, Qatar, Oman, Kuwait, and Bahrain. Worldwide corporation tax rates have dropped from above 50% to about 20% as countries compete for inward foreign investment. However, the GCC stands out as an outlier due to the novel nature of these levies. Tax rates on corporations vary from around 10% in Hamad to 15% in Iraq and Oman and over 20% in Saudi Arabia across four of the six GCC member nations. Effective June 1, 2023, the United Arab Emirates will impose a 9% company tax on the country’s companies’ taxable income. Likewise, Bahrain is contemplating adopting it for 2023.
Will the corporate tax in UAE be applied to GCC or UAE national owned companies?
Following are some facts according to the Federal Decree Law no 47 of 2020;
- According to the latest information made public by the UAE government, the corporate income tax UAE would be applied equally to all citizens and permanent residents which means the corporate tax will be paid by the UAE nationalists on owning any industry or business on which the tax is implemented.
- Any legal entity that is either incorporated (GCC) in the UAE, a permanent resident of the UAE, or has a contractual relationship in the UAE shall be subject to Emirati corporate tax. This holds true regardless of the citizenship or location of the entity’s original creators or (ultimate) owners. That means without a doubt that beginning in 2022, UAE corporate tax would be applied to any businesses owned by UAE or GCC citizens.
- According to the Federal Corporate Tax Law, all individuals are liable for taxes to the degree they carry in economic activities in the UAE. All businesses and organizations with legal standing in the UAE will be subject to UAE corporate tax. In accordance with internationally accepted standards, the term “legal person” encompasses foreign legal entities that have a contractual relationship (Permanent Establishment) in the UAE but are often effectively controlled and monitored inside the UAE.
- For the purpose of UAE corporate tax, both limited and general corporations will be considered transparent, with revenue flowing through to and being taxed exclusively by the partners or members. If an investment fund is structured as a limited partnership, this will also hold to it. The partnership is pursuant to UAE corporate tax in almost the same way as a UAE business provided that no partner has unlimited responsibility for the partnership’s commitments or the acts of any other partner.
- Taxable income earned by a non-resident from a permanent establishment in the UAE will be subject to paying the corporate tax in UAE since the earnings are UAE based or based in any GCC country where corporate tax is implemented. It is intended that international firms and advisers may rely on OECD Analysis when determining whether or not they have a permanent establishment in the UAE.
The UAE corporate tax will apply to the above business and individuals. In simple words all commercial license-based businesses have to pay the tax, apart from that some of the following businesses also have to pay the tax;
- Only foreign organizations and people that maintain consistent commercial activity in the United Arab Emirates will be eligible for residency.
- Financial transactions
- Real estate firms that handle management, building, development, agency, and brokerage duties.
So, it is concluded that the corporate tax in UAE will be implemented on UAE-based businesses and on GCC nationals wherever corporate tax law is implemented in the GCC. To make it clearer, we can say that the implementation of corporate tax does not depend on the residence or citizenship of the businessmen. All the businesses that come under the threshold as prescribed by the law will have to pay the tax.
Choose Corporate Tax Advisory ServicesAlthough the law documents explain every matter, it is not obvious that businesses will understand each and every thing. Businesses need the assistance of corporate tax advisors like Farahat and co in order to understand their tax liabilities.
