UAE CIT: The next steps

The new corporate income tax (hereinafter "CIT) in the UAE will apply to companies whose financial year differs from the calendar year with effect from 1 June 2023. Their tax assessment period will thus be from 1 June 2023 to 31 May 2024.

If, on the other hand, the financial year corresponds to the calendar year, the first tax assessment period starts on 1 January 2024 and ends on 31 December 2024.

The net profits realized in the respective tax assessment period must be declared at the end of the business year as part of the annual tax return.

It is essential that the accounting systems are appropriately prepared by the beginning of the respective tax assessment period in order to book the revenues generated in a CIT-compliant manner and, above all, without enormous administrative effort. Accounting departments face a particular challenge when it comes to classifying types of turnover, because different types of turnover (e.g. from pure free zone transactions or freezone-mainland transactions) are treated differently in regards of the new CIT system.

According to the current published regulations, there are some special rules for Free Zone companies. Even at the level of the free zone companies, a distinction is made between several types of turnover. Ultimately, it depends on the source of the revenue.

Income of a Free Zone company, generated from business with another Free Zone company (with no relation to the Mainland) will be subject to CIT but at a reduced tax rate. 

If a free zone company earns income from a transaction with a mainland company, the CIT regulations (in particular the standard tax rate of 9 percent) apply to this income. The income derived from these transactions is therefore taxed in full.

According to the current regulations, cross-border business activities of Free Zone companies will be subject to the CIT but at a reduced tax rate of 0 percent. This applies to all income that flows directly from abroad to UAE-based and registered companies.