Income tax on profit distribution

UAE corporate tax - No income tax on profit distribution

Employment income and other personal income earned by UAE residents and foreign individuals will not be within the scope of the proposed UAE Corporate tax regime. However, the Individual’s Business income earned under a commercial license and the Income earned by the Individual from activities carried out under a freelance license/permit OR from an activity that requires a license/permit to perform such acts as per local laws is taxable under the corporate tax.

Since corporate tax is only concerned with the profits earned by a business, the income tax won’t be chargeable on the same. Income taxable under corporate will be determined based on the accounting net profit (or loss) as stated in the financial statements.

Financial statements for the UAE Corporate Tax are required to be prepared based on the accounting standards and principles accepted in the UAE [IFRS is commonly used in the UAE]. However, certain taxpayers like start-ups and small businesses shall be provided relief from IFRS and will be allowed alternative financial reporting standards.

The financial accounting period shall be considered the annual tax period. In case no financial accounting period is adopted by the taxable person, the Gregorian calendar year will be the default tax period. Thus, profits earned by business organizations in the UAE will be subjected to corporate tax.