Starting from June 1, 2023, businesses operating in the UAE are required to pay a corporate tax rate of 9% if their taxable profits exceed AED 375,000 (GBP 80,000) during the first financial year. Furthermore, the Ministry of Finance (MoF) has released Ministerial Decision No. 73 of 2023 concerning Small Business Relief, which is aligned with Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Corporate Tax Law). Starting from 1st June 2023, a revenue threshold of AED 3 million (equivalent to GBP 640,000) will be applicable for tax periods.
As per Ministry of Finance, Corporate Income Tax rates are:
- 0% for taxable income up to AED 375,000 (GBP 80,000)
- 9% for taxable income above AED 375,000 (GBP 80,000)
This corporate tax rate is considered one of the lowest in the world.
Corporate Income Tax (CIT) is applicable to both businesses and individuals engaged in commercial activities under a valid license in the UAE. Just like any other business, all taxpayers must register for corporate tax before submitting their initial corporate tax return. Moreover, it is necessary to file only one corporate tax return per tax period. Typically, the corporate tax return should be submitted within nine months after the conclusion of the tax period.
The introduction of a 9% corporate income tax in the UAE can be advantageous for UK businesses operating in the UAE. The implementation of CIT in the UAE aims to support the country in accomplishing its strategic goals and expediting its growth and transformation. By establishing a competitive Corporate Tax system that aligns with international standards and leveraging its wide array of double tax treaties, the UAE solidifies its status as a prominent destination for business and investment.
To prevent double taxation and promote trade between the UK and the UAE, both countries have established a Double Taxation Treaty. Profits generated by UK businesses in the UAE will be subjected to lower tax burdens compared to operating in countries such as the UK with higher corporate income tax rates at 25%. This treaty is designed to ensure that businesses do not face taxation on the same income twice. It is crucial for UK businesses to familiarize themselves with and adhere to the provisions of the treaty in order to optimize their tax position effectively.
UK businesses can choose to consider restructuring their operations as a means to take advantage of the favourable tax environment offered by the UAE. For UK businesses considering expansion to the UAE, we recommend seeking professional advice, as staying informed about changes in tax laws and regulations in both the UK and the UAE, is essential to ensure compliance and optimize tax planning strategies. For instance, treatment of a branch (being part of a UK company) is different vs LLC; thus, it is advisable to understand the full picture.