On 31.01.2022, the Federal tax Administration (FTA) declared its intention to introduce a Corporate Income Tax (CIT) on UAE-based companies from 1st June 2023 onwards.

Thus, we are told that a standard statutory tax rate of 9% will be implemented on taxable income – i.e. on worldwide adjusted accounting net profits of UAE-based businesses.

Yet, the FTA reserves its right to apply a higher tax rate to multinationals falling within the scope of OECD’s “Pillar Two” (i.e. MNEs with consolidated turnover exceeding EUR 750m) – plausibly this higher rate will match the 15 percent rate as imposed under the OECD’s second pillar).

Finally, the FTA further indicates that free zone-based companies shall be exempted from CIT, provided these entities (i) comply with all applicable regulatory requirements and (ii) do not conduct business with mainland UAE. Further details on compliance obligations of free zone-based businesses shall be provided in due course. This caveat will likely play in favor of free zones which may have become less attractive to foreign investors lately. Indeed, for a few months now, foreign investors have been given the possibility to own and control UAE mainland companies without having to appoint a local nominee anymore (see our Client Alerts on 19.02.2021 and 06.09.2021).

Additional and more detailed information is expected from the FTA in the coming months. We shall stay on watch for any further developments in relation to this topic, and of course ready to accompany our clients in assessing how CIT will apply to their activities and ensure they are ready for implementation in 2023. 

At least, this groundbreaking measure will no doubt bolster the reputation of the UAE as a crucial economic hub, at regional and international levels. At this stage, the envisaged fiscal impact appears reasonable enough to preserve the undisputable attractiveness of the UAE within today’s business community.

Do not hesitate to contact Mrs. Marie Didierlaurent for any question you may have: marie.didierlaurent@100rhoneavocats.ch.

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