The UAE Ministry of Finance recently issued a clarification stating that foreign companies and non-resident juridical persons will be subject to a nine percent corporate tax.

The UAE Ministry of Finance recently issued a clarification stating that foreign companies and non-resident juridical persons will be subject to a nine percent corporate tax.

The UAE Ministry of Finance recently issued a clarification stating that foreign companies and non-resident juridical persons will be subject to a nine percent corporate tax on income earned from real estate and other immovable property in the UAE. This new regulation applies to both immovable property used for business purposes and property held for investment. Real estate is a crucial sector in the UAE economy, contributing significantly to the country’s GDP. The implementation of corporate tax began on June 1, 2023, and companies, both local and foreign, are required to register within a year to avoid penalties.

The clarification issued by the Ministry of Finance aligns with international best practices, which dictate that income derived from immovable property should be taxable in the country where the property is located. Younis Haji Al Khoori, the undersecretary of the Ministry of Finance, emphasized that this approach ensures fairness and consistency with global norms.

Corporate tax in the UAE will be calculated based on the net income derived from immovable property. Consequently, eligible expenditures meeting the conditions outlined in the corporate tax law can be deducted when calculating taxable income. This provision allows companies to account for legitimate expenses, reducing the overall tax burden.

The Ministry of Finance clarified certain exemptions from corporate tax. Income from real estate investments generated by immovable property owned by foreign or UAE resident individuals, either directly or through trusts, foundations, or other fiscally transparent vehicles, would generally be exempt from corporate tax, as long as it is not part of a licensed business activity.

Furthermore, real estate investment trusts and other qualifying investment funds may also enjoy an exemption from corporate tax on income derived from investments in UAE immovable property, provided they meet the specified conditions. These exemptions aim to promote investment and support the growth of the real estate sector.

The UAE Ministry of Finance recently issued a clarification...
Image Courtesy: Khaleej Times

Al Khoori emphasized that the new law ensures neutrality between domestic and foreign companies earning income from immovable property in the UAE. By applying corporate tax to foreign companies, the government aims to create a level playing field and prevent any preferential treatment. This approach encourages fair competition, benefiting both local and international businesses operating in the real estate sector.

The UAE Ministry of Finance’s recent clarification regarding corporate tax on foreign companies’ income from real estate and immovable property demonstrates the country’s commitment to international best practices. The introduction of corporate tax aligns with global norms, ensuring that income derived from immovable property is taxed in the country where the property is located. By providing exemptions for certain cases and promoting neutrality, the UAE government aims to maintain fairness and foster a competitive business environment. As the real estate sector plays a vital role in the UAE’s economy, these measures are expected to contribute to the sector’s continued growth and prosperity.

Summary of article by: Waheed Abbas, Khaleej Times

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