How Will International Airlines and Shipping Companies Be Taxed?

The UAE, being a major international logistics and transportation hub, has specific provisions related to the taxation of non-resident persons engaged in the operation of aircraft or ships in international transportation. According to the UAE Corporate Tax Law, income earned by a non-resident person from the operation of aircraft or ships in international transportation is exempt from Corporate Tax if certain conditions are met.  This article aims to provide an overview of how these companies will be taxed under the corporate tax UAEsystem. Take help from expert of corporate tax UAE.

Qualifying Activities for UAE Corporate Tax Exemption

The UAE Corporate Tax Law provides exemptions for non-resident persons engaged in the operation of aircraft or ships in international transportation. To benefit from the tax exemption, a Non-Resident Person must engage in certain qualifying activities, including:

1. International Transport: The Non-Resident Person should be actively involved in the international transport of passengers, livestock, mail, parcels, merchandise, or goods by air or sea.
2. Leasing or Chartering: Entities engaged in the leasing or chartering of aircraft or ships used in international transportation are eligible for the tax exemption.
3. Leasing of Integral Equipment: The exemption extends to entities leasing equipment integral to the seaworthiness of ships or airworthiness of aircraft used in international transportation.

By meeting these conditions, international airlines and shipping companies can benefit from the exemptions provided by the UAE Corporate Tax Law, which aim to promote global trade and tourism

The Reciprocity Principle

A notable condition for availing the tax exemption is the reciprocity principle. This principle dictates that the exemption is applicable only if the Non-Resident Person’s home country provides an equivalent exemption from Corporate Tax or a similar tax to UAE Resident Persons engaged in the operation of aircraft or ships in international transportation.

This reciprocity principle aligns with international norms in the taxation of international transportation and promotes fairness and equity in cross-border taxation practices.

Implications for International Airlines and Shipping Companies

The Corporate Tax exemptions for international transportation have significant implications for international airlines and shipping companies operating in the UAE. These exemptions can result in substantial tax savings and make the UAE an even more attractive destination for such businesses.

Some key benefits for international airlines and shipping companies include:

• Streamlined operations: The UAE’s strategic location and advanced infrastructure, coupled with the Corporate Tax exemptions, enable international airlines and shipping companies to optimize their operations and reduce costs. This can lead to improved efficiency and competitiveness in the global market.
• Reduced tax liability: With the exemption of income derived from international transportation, these companies can significantly reduce their Corporate Tax liability in the UAE.
• Encouragement of investment: The tax exemptions provide an incentive for international airlines and shipping companies to invest and expand their operations in the UAE.
• Simplified tax compliance: Companies engaged in international transportation will have fewer complexities in their tax compliance, as they will not have to account for tax on the exempt income.
• Enhanced competitiveness: By offering a favorable tax environment for international transportation, the UAE can attract more airlines and shipping companies to establish a presence in the country. This increased competition can lead to better services, lower prices, and overall benefits for consumers and businesses.
•  Support for the UAE’s logistics and transportation hub: The UAE Corporate Tax exemptions for international transportation reinforce the UAE’s position as a leading global logistics and transportation hub. This can contribute to the country’s economic growth and diversification efforts, creating new job opportunities and fostering innovation in the sector.
• Potential for increased collaboration: The tax exemptions can encourage greater collaboration between international airlines, shipping companies, and local businesses in the UAE. This can result in the development of new partnerships, joint ventures, and strategic alliances, further strengthening the UAE’s position in the global logistics and transportation industry.
• Risk management and financial planning: With the certainty provided by the UAE Corporate Tax exemptions, international airlines and shipping companies can better manage risks and plan their financial strategies. This stability and predictability can help these businesses make informed decisions about their investments and operations in the UAE, ultimately driving growth and success in the sector.

Conclusion

The UAE Corporate Tax regime provides an exemption for income earned by Non-Resident Persons from the operation of aircraft or ships in international transportation, subject to certain conditions. By exempting income from international transportation, the new UAE corporate tax regime aims to continue promoting the growth of the country’s transportation and logistics sector. Combined with the UAE’s world-class infrastructure and strategic location, the tax exemption helps reinforce the competitive advantage for these industries to use the UAE as a key hub in global supply chains.