The federal tax on corporations and business profits will come into effect for financial years starting on or after June 1, 2023

The corporate tax referred also to as the corporate income tax or business profit tax is a direct tax levied on the net income of corporations and other businesses. This Tax will be levied at a headline rate of 9 percent on taxable income exceeding Dh375,000 and is one of the lowest rates in the world. 

The tax is being implemented to hasten the nation's growth and change. The UAE will solidify its position as a top jurisdiction for business and investment thanks to the certainty of a competitive corporate tax structure that complies with international standards and its wide network of double tax treaties.

This tax applies to “Taxable Persons” – namely

(1) Natural persons (individuals) who conduct a business or business activity in the UAE as specified in a Cabinet Decision; and

 (2) UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE;

(3) Non-resident juridical persons (foreign legal entities) that have a permanent establishment in the UAE.

According to a decree from the Ministry of Finance, the following organisations are free from the corporate profit tax: Government and government-controlled entities, extractive businesses and non-extractive natural resource businesses, high-quality public benefit organisations, public or private pension and social security funds, qualifying investment funds, wholly-owned and controlled UAE subsidiaries of a government-controlled entity, qualifying investment fund, or a public or private pension or social security fund, business that is in the process of being liquidated or terminated, and personal income derived from e Investment income (from bonds, shares, and other securities), residential rental income from real estate, and salary (perks, allowances, and bonuses) are all exempt from taxation. Some of these exclusions require that specific requirements be met. Up to Dh1 million of freelancers' income is excluded.

To be eligible for a deduction, a genuine business cost must be undertaken entirely and exclusively in order to generate taxable income. However, depending on the kind of expense and the accounting system used, the timing of the deduction may vary. For capital assets, the expense is typically recorded through amortisation or depreciation deductions throughout the asset's or benefit's economic life.

Some forms of income from the UAE paid to non-residents may be subject to a 0% withholding tax. Due to the 0% rate, in practise, neither UAE firms nor international beneficiaries of income from the UAE would be required to register or file any withholding tax-related documents.

For the purposes of corporate tax, two or more taxable individuals who satisfy specific requirements might seek to create a "tax group" and are then classified as one taxable person. The main firm and its subsidiaries must be resident juridical entities, share the same fiscal year, and compile their financial statements in accordance with the same accounting rules in order to constitute a Tax Group.

The parent firm must prepare consolidated financial accounts for each subsidiary that is a member of the tax group for the applicable tax period in order to establish the taxable income of the tax group. To determine the taxable income of the tax group, transactions between group members and between parent business and each group member would be excluded.

Everyone who is subject to taxation (even those who live in a free zone) must register for corporation tax and acquire a registration number. Taxpayers have nine months from the end of the applicable period to file a tax return for each tax period. The payment of any company tax owed with regard to the tax period for which a return is submitted would typically have the same deadline.