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Corporate Tax Law in UAE: exemptions and updates

The UAE’s Ministry of Finance has announced three new updates to the Corporate Tax Law to cover conditions for exemptions of private pensions and social security funds, among others.

Businesses in the UAE will be subject to corporate tax starting on or after June 1.  Corporate tax will be set at 9 percent for taxable business profits that exceed Dh375,000. Business with profits at Dh375,00 or less will not be taxed as part of the UAE’s support for small businesses and start-ups.

Updates to the rules were announced on Tuesday (May 23), with Younis Haji Al Khouri, undersecretary of the ministry, saying that they were aimed at preventing double taxation. Here are the UAE Corporate Tax Law updates:

Pensions, social security funds exempted from UAE Corporate Tax

Under the updated law, private regulated pensions and social security funds in the UAE will be exempted from corporate tax.

UAE Corporate Tax exemptions for dividends from participating interest

The UAE will allow corporate tax exemptions on dividends, profit distributions, and capital gains from a participating interest, which is defined as a 5 percent or greater ownership interest in another entity’s shares, or capital held for at least 12 months.

The exemption applies if the subsidiary is in a jurisdiction with a corporate tax rate of at least 9 percent or can demonstrate an effective tax rate of at least 9 percent on profits, income, or equity.

UAE-based companies with specific investments in foreign entities that meet the required conditions will not be levied corporate tax on such investments. Corporate tax exemption also applies to various ownership interest types, including preferential, ordinary and redeemable shares, and membership and partner interest where the aggregated acquisition cost of the ownership interests is equal to or exceeds Dh4 million.

Standards for financial statements

The updated law also stipulates standards for businesses in preparing their financial statements that will be used to calculate their taxable income for corporate tax. Businesses with revenues of more than Dh50 million must use the International Financial Reporting Standards (IFRS) for accounting. Small and medium businesses that have revenues not exceeding Dh50 million have the option of applying IFRS. Businesses with less than Dh3 million revenue can use cash basis accounting. ICA/Expat Media

ALSO READ: 6 new rules on UAE Corporate Tax

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