Everything You Need to Know About UAE Corporate Tax

On 31st January 2022, the tax landscape in the United Arab Emirates (UAE) underwent a significant transformation with the announcement of a new federal corporate tax system.

This system is set to effect for financial years commencing from 1st June 2023. This post will explore the intricacies of the UAE corporate tax law, its implications, exemptions, and the overall impact on businesses, as well as the applicable tax rate.

Understanding UAE Corporate Tax

The UAE Corporate Tax, also referred to as corporate income tax or business profit tax, is a direct tax levied on the net income of corporations and businesses. Under the new regulations, businesses are required to pay a 9% tax on profits exceeding Dh375,000. Importantly, any taxable profits below this threshold will be exempt from tax, allowing small businesses to thrive without the burden of additional financial obligations.

Turnover Threshold

To ensure fairness in taxation, the Ministry of Finance has established a turnover threshold for corporate tax. Business owners will only be subject to corporate tax if their annual turnover exceeds Dh1 million. This measure ensures that only significant business income is taxed, thereby supporting smaller enterprises.

Who is Affected?

The corporate tax regulations apply to specific entities, referred to as “Taxable Persons.” These include:

UAE Companies and Juridical Persons: Corporations and legal entities incorporated or effectively managed within the UAE.
Natural Persons (Individuals) Conducting Business: Individuals engaged in business activities within the UAE, as defined by the Cabinet Decision.
Non-Resident Juridical Persons with Permanent Establishments: Foreign legal entities that maintain a permanent establishment within the UAE.
Exemptions for Strategic Sectors

The UAE government has outlined several exemptions for businesses operating in strategic sectors. The following entities are exempt from corporate tax:

• Government and Government-Controlled Entities: These entities are controlled by the government, allowing for better resource utilisation for public welfare.
• Extractive and Non-Extractive Natural Resource Businesses: Companies involved in natural resource extraction and related sectors are exempt.
• Qualifying Public Benefit Entities and Investment Funds: This includes public benefit entities, investment funds, and pension or social security funds.
• Wholly Owned and Controlled Entities: Entities wholly owned and controlled by an exempt person, with activities ancillary to that person, qualify for an exemption.

Advantages of UAE Corporate Tax

The UAE’s corporate tax rate is among the lowest globally, making it an appealing destination for businesses. The introduction of corporate tax reflects the country’s commitment to responsible financial practices while fostering an environment conducive to economic growth and entrepreneurship.

Registration and Filing Requirements

All taxable persons, including those in free zones, must register for corporate tax and obtain a registration number. Taxable persons are required to file a tax return for each tax period within nine months from the end of the relevant period. The same deadline applies to the payment of any corporate tax due for the filed tax period.

While the registration process may seem daunting, we’re here to help! With our Corporate Tax Registration service, enjoy worry-free, up-to-date, and compliant registration, helping you maintain adherence to UAE regulations.

In conclusion, the introduction of corporate tax in the UAE marks a pivotal shift in the country’s fiscal landscape, aiming to balance economic growth with responsible taxation. Understanding these regulations is crucial for businesses operating within the UAE to ensure compliance and leverage the benefits offered by the new tax framework.