Do I need to Pay Foreign Tax and Double Taxation?
Foreign Tax
Under the upcoming UAE Corporation Tax regime, foreign companies will be subject to the corporate tax rate of 9% on annual taxable income exceeding AED 375,000.
However, this is usually only applicable to businesses which conduct trade or do a business in the UAE on a regular basis. Foreign investors on the other hand would have a separate treatment. Corporation tax would not normally by levied on dividends, capital gains, interest and royalities.
Foreign Tax Circumstances
To qualify for the 9% annual tax rate a foreign company operating in UAE has:
- Their Permanent Establishment (PE); or
- Their Place of Effective Management; or
- Their source of income.
Double Taxation
Double Taxation can occur when two countries tax the same income. It can also occur on a corporate and personal level, as can be the case with stock dividends.
International Double Taxation
Income may be taxed in the country where it is earned, and then taxed again when it is received in a business’ home country.
Countries around the world have signed hundreds of treaties for the avoidance of double taxation, often based on models provided by OECD. These treaties are made by nations agreeing to limit taxation of international business in an effort to strengthen trade, and to avoid double taxation.
Foreign Corporation Tax paid on UAE taxable income is expected to me allowed as a tax credit or deduction against the UAE CT liability subject to certain requirements.
Key Highlights on UAE Corporation Tax
- UAE Corporation tax rate one of the lowest within the GCC region and along major economies
- Tax applicable on profits above AED 375,000 and not below that
- Standard Corporate Tax Rate is 9%
- CT effective from 1 July 2023 from financial year 2023 ending on 30 June 2024
- The financial year for businesses starting 1 January 2023 and ending 31 December 2023 will become subject to the tax beginning from 1 January 2024
- Tax incentives offered to freezone businesses complying with all regulatory requirements will remain
- Capital gains and dividends received by the companies in UAE from their qualifying shareholdings are also exempt from paying CT.
Corporation Tax - FAQ
Corporate Tax (CT) is a direct tax levied on the net income or profit of corporations and other businesses.
Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions. Most countries have a comprehensive CT regime, including most of the GCC Member States.
0% for taxable income up to AED 375,000
9% for taxable income above AED 375,000
There is also a different tax rate for large multinationals that meet specific criteria set with reference to ‘Pillar Two’ of the OECD’s (Organisation for Economic Cooperation and Development’s) Base Erosion and Profit Shifting project.
Corporation tax is effective from 1st of June 2023 and it is expected that filing and payment deadlines will be 9 months after the financial year end.
Companies operating in Free Zones will be subject to UAE Corporation Tax, but the UAE Corporation Tax regime will continue to apply incentives offered to free zone businesses (providing they comply with the regulatory requirements and do not conduct business with mainland UAE).
Entities operating in Free Zones will be subject to a 0% CT rate on their taxable income. If an entity located in a Free Zone derives non-passive income from mainland UAE all its income will be subject to the general CT regime.
Under the upcoming UAE Corporation Tax regime, foreign companies will be subject to the corporate tax rate of 9% on annual taxable income exceeding AED 375,000.
To qualify for the 9% annual tax rate a foreign company operating in UAE has
Their Permanent Establishment (PE); or
Their Place of Effective Management; or
Their source of income.
On the 1st of June 2023, the corporate tax rate will be 9% of the net profit made by businesses in the AUE. In order to support small businesses and start-ups, the corporate tax rate will be ‘0’ % if the net profit is up to 3,75,000 AED.
The best way to prepare for the new Corporation Tax is to have accounting software which covers all the necessary requirements. The best accounting software for businesses currently is QuickBooks Accounting software.
On the 1st of June 2023, the corporate tax rate will be 9% of the net profit made by businesses in the UAE. In order to support small businesses and start-ups, the corporate tax rate will be ‘0’ % if the net profit is up to AED 375,000.