Navigating the impact of the UAE’s corporate tax

The recent introduction of corporate tax in the United Arab Emirates (UAE) has sparked a detailed examination among family business groups of the possible implications on their established structures. This change applies to entities with international holdings, but raises concerns about the inadvertent increases in overall tax liabilities.

Lynda O Mahoney, Global Head of Business Development – Private Client, and Leevyn Isabel, Business Development Director at Ocorian, identify how family businesses and offices may be impacted by the new corporate tax and how they should adapt accordingly.

What is the new UAE corporate tax?

The UAE's corporate tax, as outlined in Federal Decree-Law No.47 of 2022, came into effect for financial years starting on or after June 1, 2023. Companies with a fiscal year ending on December 31 embarked on their initial corporate tax period on January 1, 2024. The standard tax rate stands at 9% for incomes exceeding AED 375,000, with exemptions granted to certain entities and small businesses with revenues under AED 3 million.

Who will be impacted by the new corporate tax?

Of notable concern for family businesses are international holdings that might now be deemed tax residents in the UAE. This could lead to a significant impact on family businesses that fail to proactively adjust their management and governance framework to align with the new tax regulations.

Entities incorporated in the UAE or foreign entities managed and controlled within the UAE are deemed tax residents, with key management decisions playing a pivotal role. The location of directors and senior management significantly influences tax residency, potentially leading to international companies being categorised as UAE tax residents.

What does the new tax mean for family businesses?

As family businesses seek to navigate these changes, it becomes imperative for them to reassess their structures in alignment with international tax standards, economic substance requirements, and corporate governance best practices. Furthermore, consideration should be given to the tax implications for real estate assets in the UAE.

Looking ahead, the UAE is expected to align with the Pillar Two Rules or Global Minimum Tax, applying a minimum 15% tax on income for large multinational enterprises with revenues exceeding €750 million. Anticipated to be implemented in 2025, these rules mandate a 15% effective tax rate on profits in each jurisdiction.

How should family offices adapt accordingly?

Family offices with turnovers surpassing €750 million are urged to evaluate the impact of these rules, contemplating potential restructuring, compliance, and additional taxes outside the UAE.

Amid these transformations, family offices are advised to conduct a comprehensive review of their shareholding, governance, and management frameworks. Ensuring alignment with international tax standards is crucial not only for regulatory compliance but also for safeguarding shareholder interests.

How can Ocorian support family businesses in the UAE?

Ocorian's UAE domestic and global teams are actively collaborating with numerous UAE family groups and their advisors. Their objective is to strategically assess existing structures, ensuring alignment with international tax standards, fortifying economic substance, and enhancing corporate governance best practices.