LLC
The UAE has long been known as a zero-corporate-tax jurisdiction. This changed with the introduction of a federal corporate income tax (CIT) effective for financial years starting on or after June 1, 2023. As a member of the Inclusive Framework of the Organisation for Economic Cooperation and Development’s (OECD), which is committed to implementing the anti-Base Erosion and Profit Shifting (BEPS) initiatives, the UAE is expected to introduce legislation to implement the Global Minimum Tax (GMT) initiative (Pillar Two). This tax aims to establish a minimum effective tax rate of 15 percent on multinational corporations, specifically targeting those with an annual consolidated group revenue exceeding a certain threshold (eg, EUR750 million).
CIT is payable on the net profits of UAE businesses as reported in their financial statements prepared in accordance with internationally acceptable accounting standards (IFRS). CIT is applicable to all businesses and business activities alike. The CIT regime includes exemptions for government entities, government-controlled entities, extractive businesses, non-extractive natural resource businesses, qualifying public benefit entities and qualifying investment funds.
The standard statutory CIT rate will be 9 percent, whereas a 0 percent rate will apply for taxable profits up to AED375,000 to support small businesses and startups. To align with Pillar Two of the global tax initiative, the UAE has implemented a new domestic top-up tax. This tax ensures that multinational corporations, with an annual consolidated group revenue over EUR750 million, are subject to a CIT rate of 15 percent. This measure is specifically designed to bring the tax rate for these large multinational entities in line with the globally agreed minimum.
Some emirates in the UAE impose corporate taxes on companies engaged in the oil and gas sector. These taxes are generally levied at the emirate level because each emirate holds the rights to its own natural resources. The rates and terms of taxation in this sector can vary from 1 emirate to another.
Effective January 1, 2018, the UAE has implemented a Value Added Tax (VAT) at a rate of 5 percent, as recommended by the World Bank and the International Monetary Fund (IMF).
There are some municipality taxes on rent and certain land transfer charges paid when transferring real estate.
Branch
A UAE branch of a non-resident person is deemed to be an extension of the non-resident person and may constitute a ‘permanent establishment’ of the non-resident person for tax purposes. A non-resident with a UAE permanent establishment will be required to register for CIT purposes and will be subject to tax on any taxable income attributable to the permanent establishment. A branch is required to prepare stand-alone financial statements in accordance with accounting standards accepted in the UAE (IFRS).
FZ-LLC
Free zone companies are eligible for a special tax regime. Under this ‘free zone tax regime,’ Qualifying Free Zone Persons (QFZPs) can benefit from a 0 percent tax rate on ‘qualifying income,’ subject to meeting the relevant conditions. Any income that is not qualifying income will be taxed at 9 percent.
Free zone companies that do not meet the relevant criteria to be considered a QFZP will be subject to the standard CIT regime.
Companies located in the free zones are subject to VAT. Special rules apply for transactions involving goods in designated zones, which are specific free zones that comply with criteria set out under VAT legislation. For a list of these designated zones, you can refer to the website of the UAE’s Federal Tax Authority.
FZ-Branch
A branch of a non-resident person registered in a free zone can also benefit from the free zone tax regime, subject to meeting the relevant conditions.
Dual Licence Branch
A QFZP can create a ‘domestic permanent establishment’ by establishing a branch in UAE mainland. Income attributable to a domestic permanent establishment is subject to tax at 9 percent, whereas qualifying income derived by the QFZP is eligible for a 0 percent tax rate under the free zone tax regime.
