Corporate Tax is a form of direct tax levied on the net income of corporations and other businesses. Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.
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Corporate Tax applies to the following taxable persons: -
UAE businesses will be subject to CT on their worldwide income. However, dividend income and capital gains will be exempt, subject to meeting the conditions of the participation exemption. The Law also provides for a foreign branch profits exemption where those profits have been subject to tax overseas at a rate of at least 9%. Foreign tax credit will be available for taxes paid overseas on forms of income that are not exempt from UAE CT.
Natural persons that are UAE residents and subject to CT will be taxable only on the income earned from business activities undertaken in the UAE.
Nonresidents will be subject to CT on any taxable income attributable to a PE or nexus in the UAE or any income that is considered UAE-sourced income.
Nonresidents will be considered to have a PE in the UAE if they have a fixed place of business or a dependent agent in the country. The language used in the Law to describe these tests seem broadly aligned with Organisation for Economic Co-operation and Development (OECD) standards. The Corporate Tax Law states that other forms of nexus in the UAE that could create a PE will be determined through a Ministerial Decision.
The Corporate Tax Law introduces the concept of a “Qualifying Free Zone Person” (QFZP), which is broadly defined as a company or branch registered in a free zone that:
A QFZP will still be subject to CT but may benefit from a 0% rate on its qualifying income. A QFZP can elect to forego this preferential regime and be subject to the standard CT rate.
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