The United Arab Emirates (UAE) has recently embarked on a significant milestone in its taxation history by introducing a corporate tax regime. Historically, the UAE had a business-friendly tax environment without a federal corporate tax. However, recent changes have introduced a 9% corporate tax, marking a significant shift. Some exemptions and benefits remain, particularly for free-zone companies that offer tax incentives and streamlined regulations.
The implementation of corporate tax demonstrates the UAE’s commitment to diversifying revenue, adhering to global tax standards, and bolstering economic stability. It is vital for businesses in the UAE to understand corporate tax for compliance and informed financial decision-making.
What constitutes the corporate tax?
Corporate tax is taxation imposed on companies’ profits within a jurisdiction, allowing governments to generate revenue and support public finances. The tax rate differs among jurisdictions and substantially influences companies’ financial strategies and profitability.
Implementation date of federal corporate tax in UAE
The implementation of corporate tax is effective for financial years commencing on or after June 1st, 2023.
Corporate tax rates in UAE
As of June 1, 2023, the UAE has implemented a 9% corporate tax. This marks a significant change in the country’s tax system, as it previously did not impose a federal corporate tax on companies. Corporate tax in UAE reflects and efforts to diversify its revenue sources, align with international taxation standards, and enhance economic stability.
Companies operating within the UAE should take into account this new tax rate when planning their financial strategies and ensuring compliance with the updated tax regulations. However, small businesses and start-ups receive additional support, as the corporate tax is 0% if the net profit is up to 375,000 AED.
Corporate Tax Calculation
- Rates of Corporate Tax Based on Taxable Income:
Taxable income up to AED 375,000: 0% tax
Taxable income exceeding AED 375,000: 9% tax
- Qualifying Freezone Entities: Criteria and Eligibility
Qualifying Income: 0% Tax Rate
Non-Qualifying Income: 9% Tax Rate
Calculation Method of Corporate Tax in UAE
For instance, if the net profit is 475,000 AED, the corporate tax would amount to 9,000 AED (475,000 – 375,000)*9/100.
Entities and Individuals Subject to Corporate Tax in UAE:
- All businesses and individuals conducting business activities under a commercial license in the UAE.
- Free zone businesses: The UAE corporate tax regime recognizes and maintains the existing incentives offered to free zone businesses that comply with regulatory requirements and exclusively operate within the free zone.
- Foreign entities and individuals: Corporate tax applies to foreign entities and individuals if they engage in regular or ongoing trade or business activities in the UAE.
- Banking operations: Banking operations are subject to corporate tax.
- Businesses engaged in real estate management, construction, development, agency, and brokerage activities.
Corporate Tax Exemptions in the UAE
- Extraction of natural resources: Businesses involved in the extraction of natural resources are exempt from corporate tax. These businesses will continue to be subject to the current Emirate-level corporate taxation.
- Dividends and capital gains: Dividends and capital gains earned by a UAE business from its qualifying shareholdings are exempt from corporate tax.
- Qualifying intra-group transactions and reorganizations: Intra-group transactions and reorganizations meeting the necessary conditions are not subject to corporate tax.
Entities Excluded from Corporate Tax
- Salary and employment income: Income earned by an individual from salaries and other employment sources, whether from the public or private sector.
- Interest and other income: Income earned by an individual from bank deposits or saving schemes, including interest and other types of income.
- Foreign investor income: Income earned by foreign investors from dividends, capital gains, interest, royalties, and other investment returns.
- Personal real estate investment: Income derived from personal real estate investments made by individuals.
- Dividends, capital gains, and securities income: Income earned by individuals from owning shares or other securities in their personal capacity, including dividends and capital gains.
Procedures of Corporate Tax Return Filing
The Federal Tax Authority (FTA) in the UAE has implemented a requirement for businesses to file a single consolidated tax return, simplifying the tax filing process and alleviating administrative burdens. This consolidated return must be submitted within nine months following the end of the applicable tax period.
Expand Tax and Businessmen Services specialize in assisting businesses with e-filing their consolidated tax return, streamlining the process, and offering expertise in online filing. Their professional team possesses a comprehensive understanding of the intricate tax laws and regulations in the UAE, providing seamless support to businesses during the tax filing process. With their assistance, businesses can ensure punctual and accurate tax filings, mitigate the risk of penalties, and uphold compliance.
Corporate Tax Registration Process in the UAE
Corporate tax registration is an essential requirement for businesses operating in the United Arab Emirates (UAE). The process ensures compliance with the country’s tax regulations and enables businesses to fulfill their tax obligations. This article provides an overview of the corporate tax registration process in the UAE.
Determine Taxable Entities:
The first step in the corporate tax registration process is to identify whether your entity falls within the scope of taxable entities. Generally, businesses operating under a commercial license in the UAE, including free zone businesses and foreign entities engaged in regular trade or business activities, are subject to corporate tax.
Gather Required Documents:
To initiate the registration process, gather the necessary documents, which may include:
- Trade license and commercial registration certificate
- Memorandum and Articles of Association (MOA/AOA)
- Passport copies of company shareholders and authorized signatories
- Details of company shareholders and their shareholding structure
- Financial statements, audited accounts, and tax returns from the previous year (if applicable)
Create an Account on the FTA Portal:
The Federal Tax Authority (FTA) is responsible for tax administration in the UAE. Create an account on the FTA’s online portal to access the corporate tax registration system.
Submit the Registration Application:
Fill out the corporate tax registration form on the FTA portal, providing accurate and up-to-date information about your business. Attach the required documents and submit the application online.
Await FTA Approval:
After submitting the registration application, the FTA will review the documents and information provided. Once approved, you will receive a tax registration certificate indicating your taxpayer identification number (TIN).
Seek Professional Assistance:
The corporate tax registration process in the UAE can be complex and time-consuming. Consider seeking professional assistance from tax consultants or accounting firms with expertise in UAE tax regulations. They can provide guidance throughout the registration process and ensure compliance with all requirements.
The rate of corporate tax in the UAE differs across emirates. The absence of a federal corporate tax has contributed to the UAE’s attractiveness as a global business destination, offering numerous exemptions and benefits to companies. The tax environment supports economic diversification, encourages foreign investment, and promotes sustainable growth. By understanding the corporate tax landscape in the UAE, businesses can make informed decisions when setting up operations and harness the opportunities provided by this tax-friendly jurisdiction.