WHAT IS CORPORATE TAX?
Corporate tax is a form of direct tax levied on the net income or profit of corporations and other entities from their business. Corporate tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.
Corporate tax rates vary widely by country, with some countries considered to be tax havens due to their low rates. Below is a breakdown on the Corporate Tax regimes of all GCC countries.
UAE will introduce a federal corporate tax on business profits that will be effective for financial years starting on or after 1st June 2023. Businesses will become subject to UAE corporate tax from the beginning of their first financial year that starts on or after 1st June 2023.
The UAE corporate tax regime has been designed to incorporate best practices globally and minimize the compliance burden on businesses. Corporate tax will be payable on the profits of UAE businesses as reported in their financial statements prepared in accordance with internationally acceptable accounting standards, with minimal exceptions and adjustments. The corporate tax will apply to all businesses and commercial activities alike, except for the extraction of natural resources which will remain subject to Emirate level corporate taxation.
With a standard statutory tax rate of 9% and a 0% tax rate for taxable profits up to AED375,000 to support small businesses and startups, the UAE corporate tax regime will be amongst the most competitive in the world.
No corporate tax will apply on personal income from employment, real estate and other investments, or on any other income earned by individuals that does not arise from a business or other form of commercial activity licensed or otherwise permitted to be undertaken in the UAE.
As an international headquarter location, a UAE business will be exempt from paying tax on capital gains and dividends received from its qualifying shareholdings, and foreign taxes will be allowed to be credited against UAE corporate tax payable.
The UAE corporate tax regime will have generous loss utilization rules and will allow UAE groups to be taxed as a single entity or to apply group relief in respect of losses and intragroup transactions and restructurings.
The UAE corporate tax regime will ensure the compliance burden is kept to a minimum for businesses that prepare and maintain adequate financial statements. Businesses will only need to file one corporate tax return each financial year and will not be required to make advance tax payments or prepare provisional tax returns. Transfer pricing and documentation requirements will apply to UAE businesses with reference to the OECD Transfer Pricing Guidelines.
[Source: Emirates News Agency]
Generally, non-Saudi investors are liable for income tax in Saudi Arabia. In most cases, Saudi citizen investors (and citizens of the GCC countries, who are considered to be Saudi citizens for Saudi tax purposes) are liable for Zakat, an Islamic assessment. Where a company is owned by both Saudi and non-Saudi interests, the portion of taxable income attributable to the non-Saudi interest is subject to income tax, and the Saudi share goes into the basis on which Zakat is assessed.
According to the income tax law, the following persons are subject to income tax:
- A resident capital company with respect to shares owned either directly or indirectly by non-Saudi/non-GCC persons and persons operating in oil and hydrocarbon production, except for the following (in which case the underlying resident company would be subject to Zakat:
- Shares owned in a resident capital company listed in the Saudi stock market acquired for the purpose of speculation through trading in the Saudi capital market.
- Shares owned either directly or indirectly by persons working in the field of oil and hydrocarbons production in a resident capital company listed in the Saudi stock market, and the shares owned either directly or indirectly by these companies in capital companies.
- A resident non-Saudi natural person who carries on activities in Saudi Arabia.
- A non-resident person who carries out activities in Saudi Arabia through a PE.
- A non-resident person who has other income subject to tax from sources within Saudi Arabia without having a PE.
- A person engaged in natural gas investment fields.
- A person engaged in oil and other hydrocarbon production.
The rate of income tax is 20% of the net adjusted profits. WHT (Withholding Tax) rates are between 5% and 20%. Zakat is charged on the company’s Zakat base at 2.5%. Zakat base represents the net worth of the entity as calculated for Zakat purposes.
It should be noted that, although the income tax rate is 20%, income from the following two activities is subject to different rates:
- Income from oil and hydrocarbon production is subject to tax at a rate ranging from 50% to 85%.
- The tax base of a person who works in natural gas investment should be independent of the tax base relating to other activities of this person.
Kuwait does not impose Corporate Income Tax (CIT) on companies wholly owned by the nationals of Kuwait or other Gulf Cooperation Council (GCC) countries (Bahrain, Oman, Qatar, Saudi Arabia, and the United Arab Emirates). However, GCC companies with foreign ownership are subject to taxation to the extent of the foreign ownership. CIT is imposed only on the profits and capital gains of foreign 'corporate bodies' conducting business or trade in Kuwait, directly or through an agent.
Income earned from activities in Kuwait shall be considered subject to tax in Kuwait on the basis that it is Kuwait-sourced income. In cases where a contract involves the performance of work both inside and outside Kuwait, the entire revenue from the contract must be reported for tax in Kuwait, including the work carried out outside Kuwait. Please refer to the Income determination section for more information on income that is subject to tax in Kuwait.
The current Corporate Income Tax (CIT) rate in Kuwait is a flat rate of 15%.
Foreign companies carrying on trade or business in the offshore area of the partitioned neutral zone under the control and administration of Saudi Arabia are only subject to tax in Kuwait on 50% of their taxable profit under the law.
Zakat is imposed on all publicly traded and closed Kuwaiti shareholding companies at a rate of 1% of the companies’ net profits.
The principal tax in Oman is a corporate tax on business income.
The following entities are subject to corporate tax:
- Companies and enterprises established in Oman
- Foreign entities undertaking business in Oman.
Corporate tax is payable by Omani companies and foreign entities that have a permanent establishment in Oman at the rate of 15% of profits.
There is no tax- free threshold. The applicable rate of corporate tax will be 3% if the taxpayer satisfies all of the following conditions:
- Is an Omani corporate entity
- Has a share capital of OMR 50,000 or less
- Employs 15 employees or less
- Has an annual revenue of OMR 100,000 or less
- Does not partake in activities relating to the business of banking, insurance, financial institutions, public utilities concessions, air and sea transport, or extraction of natural resources, or as otherwise decided by the Council of Ministers.
Entities whose main activity is in the industrial sector may be granted a tax exemption. Income derived from the sale of oil and gas originating in Oman is taxed at a rate of 55%. However, the petroleum company that realizes such profits, although still considered a taxpayer in Oman, would typically have its tax obligations discharged by the government of Oman under the terms of its Exploration and Production Sharing Agreement.
An entity that is wholly or partially foreign owned and that derives income from sources in Qatar is taxable in Qatar. In the case of a joint venture, the tax liability of the joint venture is dependent upon the foreign partners’ share of the joint venture's profit. Currently, no corporate income tax (CIT) is levied on a corporate entity that is wholly owned by Qatari nationals and GCC nationals that are resident in Qatar.
Unless specifically exempt from tax, an entity will be taxable in Qatar if it has generated Qatar-source income, regardless of the place of its incorporation.
Taxable income generally is subject to a flat (CIT) rate of 10%, with certain exceptions available.
The following tax rates apply in the specific circumstances noted:
- If a special agreement was reached with the government of Qatar prior to 1 January 2010, the rate specified in the agreement continues to apply. If no rate is specified in the agreement, a rate of 35% will be used.
- The rate applied with respect to oil operations, as defined in Law No. 3 of 2007, may not be less than 35%.
- Payments made to non-residents with respect to certain service activities not connected with a PE in Qatar are subject to WHTs.
- Provisions introduced by the New Tax Law and its Regulations may impact a Qatari entity’s tax position with regards to profits attributable to its Qatari shareholding, as new requirements have been introduced that have narrowed the scope of such exemptions; consequently, it is recommended that all Qatari entities review their tax positions.
- In addition to the above, fully owned subsidiaries of listed entities are now taxable to the extent of non-exempt ownership (i.e. foreign or non-exempt Qatari / GCC ownership). Previously, there was a perception amongst taxpayers that such subsidiaries were tax exempt.
There are no local, state, or provincial government taxes on income in Qatar.
Bahrain is the only GCC country that has not introduced the corporate tax yet.