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With the UAE Corporate Income Tax (CIT) go-live date getting closer for most businesses in the UAE, new Guides and Decisions on the tax regime keep getting published by the UAE authorities. Most recently, this included a (i) Guide on the Taxation of Natural Persons, (ii) a Guide on the Taxation of Foreign Source Income, and (iii) a Guide on the Accounting Standards and Interaction with CIT. In addition, a new Cabinet Decision and Ministerial Decision were published, which provided important changes and updates to the UAE’s Free Zone Tax Regime.

In this month’s update, we take a closer look at the mentioned Decisions bringing about new changes to the UAE’s Free Zone Tax Regime and the ability for Free Zone businesses to benefit from the 0% tax rate. The Decisions provide helpful clarifications on various Qualifying Activities, as well as a welcome relaxation of the regulations around income generated from Qualifying Intellectual Property (IP). Instead of the previous  and now repealed – Decisions treating IP activities as (fully) Excluded Activities, the new rules will be favorable to specific types of IP, such as patents, among others.

In a surprising move, the UAE recently amended the CIT Law, by introducing a top-up tax mechanism, ensuring Multinational Enterprises (MNEs) adhere to a global minimum tax rate of 15%, as part of the internationally adopted OECD BEPS Pillar Two initiative. This strategic move aims to safeguard UAE’s tax revenues, particularly from the potential impacts of the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) applied by other jurisdictions. The exact timeline for the top-up tax’s implementation remains uncertain, but multinational corporations with a presence in the UAE should prepare for compliance with these global tax norms. Earlier this year, the UAE announced that it would not be implementing the OECD’s BEPS Pillar Two rules before 2025.

The UAE Federal Tax Authority has released a series of comprehensive guides to assist taxpayers in navigating the complexities of the new CIT regime. These include detailed insights on non-resident tax implications, transfer pricing regulations, and the interaction of accounting standards with CIT. Additionally, there are guidelines on the taxation of foreign source income and natural persons, providing clarity on various income categories and taxpayer obligations. These guides represent the UAE’s dedication to a transparent and modern tax environment, aligning with international standards and accommodating the country’s diverse economic landscape.

Whilst the UAE is focusing on the further implementation of CIT, Kuwait is making notable strides in reforming its tax system, with plans to introduce a Business Profits Tax and align with the OECD’s BEPS Pillar Two rules. Additionally, the introduction of an Excise Tax on specific goods reflects Kuwait’s commitment to health and environmental goals. Contrary to other GCC countries (except Qatar), Kuwait has postponed the implementation of VAT, and seems to be opting for a simpler and more targeted Excise Tax regime. The country’s recent joining of the OECD’s Inclusive Framework on BEPS signifies its commitment to global tax cooperation and harmonization.

Finally, from an international tax perspective, the GCC member states continue to expand their Double Tax Treaty (DTT) networks with various other jurisdictions. From an intra-GCC perspective, it is interesting to note that the Saudi Arabian Council of Ministers authorized the signing of a DTT with Qatar.

We hope you enjoy this month’s newsletter, and as always, your comments and feedback are highly appreciated.