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Tuesday, 01 February 2022

International tax update: UAE introduces corporate income tax

Yesterday, 31 January 2022, the UAE Ministry of Finance announced the introduction of a federal corporate income tax (‘CIT’). For financial years starting on or after 1 July 2023, UAE companies will be subjected to a tax of 9% on their business profits exceeding 375.000 AED (which is about 90.000 EUR). This CIT will apply equally in each of the emirates. The existing tax regimes – at Emirate level – for extractive industries will remain in place and the undertakings concerned will not be subjected to the federal CIT. The banking sector would be subjected to the new CIT and further details on the current Emirate level corporate taxation governing this sector today will be provided later by the UAE authorities.

Certain income would be exempt from tax, such as capital gains and dividends from ‘qualifying shareholdings’ or certain intra-group transactions. Also, free trade zone incentives would continue to apply.

Multinational enterprises that are in scope of Pillar II would be subjected to a separate tax rate. Presumably to avoid that UAE based profits would not meet the 15% effective tax rate (‘ETR’) requirement, allowing (ultimate) parent entities of UAE companies to levy a top up tax under the future Pillar II rules.

The introduction of a 9% CIT-rate in the UAE will not solve the problems Belgian MNE’s face under the Belgian participation exemption regime when repatriating UAE-profits through dividend distributions from direct UAE-subsidiaries or from intermediate subsidiaries having a PE in the UAE. The expected 15% ETR for Pillar II groups however should and as such should also create a level playing field with international groups outside Belgium.

The UAE Ministry of Finance must still issue further details about the future federal CIT system, but that this development is relevant for many Belgian based multinational enterprises is clear.

Much will, however, also depend on the further details that are still to be provided by the UAE government.

Needless to say that the Tiberghien team will continue to keep an eye on this important development.

Koen Morbée – Partner (koen.morbee@tiberghien.com)

Rik Smet – Associate (rik.smet@tiberghien.com)

 

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Tiberghien’s international tax team will continue to monitor these and other tax developments relevant for Belgium / Luxembourg based multinational enterprises. Our editorial board consists of: 

Koen Morbée (International and EU corporate tax, koen.morbee@tiberghien.com);

Michiel Boeren (International and EU corporate tax, michiel.boeren@tiberghien.com);

Ahmed El Jilali (International and EU corporate tax, ahmed.eljilali@tiberghien.com);

Katrien Bollen (HR tax and global mobility, katrien.bollen@tiberghien.com);

Ben Plessers (Transfer Pricing and Valuations, ben.plessers@tiberghien.com);

Gert Vranckx (VAT, customs, excises and other indirect taxes, gert.vranckx@tiberghien.com

Rik Smet (International and EU corporate tax, rik.smet@tiberghien.com)

 

In case you have further questions on this publication or want to discuss a tax query, please do not hesitate to contact the author(s) or one of the members of the editorial board. 

This newsflash is for information purposes only and cannot be relied upon as legal advice.

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