UAE Ministry Clarifies Corporate Tax on Real Estate and Immovable Property: Neutrality Assured
The UAE has taken a significant stride in enhancing its corporate tax regulations, particularly concerning income generated from real estate and immovable property. The UAE Ministry of Finance recently issued a clarification aimed at ensuring neutrality between domestic and foreign companies when it comes to earning income from immovable assets within the Emirates.
Under the new directive, 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 law applies to both immovable property used for business purposes and immovable property held for investment within the country. Given that real estate is a cornerstone of the UAE economy and a major contributor to its GDP, this clarification holds paramount importance for the business landscape.
This move follows the introduction of corporate tax in the UAE from June 1, 2023. The government has mandated that all local and foreign companies must register within a year to avoid potential penalties.
The issuance of this clarification stems from Cabinet Decision No. 56 of 2023 on a non-resident Person’s Nexus in the UAE, aligned with Federal Decree-Law No 47 of 2022.
Younis Haji Al Khoori, the undersecretary of the Ministry of Finance, stated that the tax treatment outlined in the clarification aligns with international best practices. These practices dictate that income derived from immovable property should be taxable in the country where the property is located. In this context, the UAE’s approach to corporate tax is in line with global standards.
The corporate tax calculation will be based on a net income basis, allowing relevant expenditures that meet the conditions specified in the corporate tax law to be deducted when calculating taxable income. This approach aims to foster transparency and accountability in the taxation process.
However, certain exemptions have been outlined. The Ministry clarified that income earned from immovable property owned by foreign or UAE resident individuals, whether directly or through entities like trusts or foundations, would typically not be subject to corporate tax on real estate investment income. It is important, though, that such income is not a part of a licensed business activity.
Moreover, real estate investment trusts and qualifying investment funds can potentially enjoy an exemption from corporate tax on income derived from investments in UAE immovable property, provided they meet specific conditions outlined by the regulations.
Al Khoori underscored that the primary objective of this law is to maintain neutrality between domestic and foreign companies that generate income from immovable property in the UAE. This approach aims to create a level playing field, ensuring that both local and international businesses operate under equitable conditions.
In conclusion, the UAE Ministry of Finance’s recent clarification on corporate tax regulations related to real estate and immovable property signifies a pivotal step towards ensuring fairness and transparency in the business landscape. By adopting international best practices and promoting neutrality in taxation, the UAE not only demonstrates its commitment to global standards but also reinforces its attractiveness as a business-friendly destination for both local and foreign investors.
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