Understanding Corporate Tax in the UAE
As a key business hub in the Middle East, the UAE offers significant tax benefits to investors, particularly for businesses established in UAE free zones. On January 31, 2022, the UAE’s Ministry of Finance announced the introduction of a federal corporate tax (CT), set to affect companies’ financial periods starting on or after June 1, 2023. This tax system aligns with global best practices and OECD guidelines, minimizing the compliance burden on businesses.
What is Corporate Tax?
Corporate tax is a direct tax levied on a company’s net income or profit. It is also known as business profit tax or corporate income tax in some jurisdictions.
Application of Corporate Tax in the UAE
Corporate tax applies to all business and commercial activities conducted within the seven emirates of the UAE, with some exceptions:
- Natural Resources: Businesses involved in mining or exploitation of natural resources.
- Personal Income: Individuals receiving income or gains in a personal capacity.
- Free Zone Companies: Companies in free trade zones complying with legal requirements can apply a 0% corporate tax rate for income earned from outside the UAE or within similar free zones.
- Government Entities: Government and government-owned entities are exempt.
- Charities and Public Benefit Organizations: Exempt upon approval by the Ministry.
- Investment Funds and Real Estate Investment Trusts: Can apply for exemption if they meet specific requirements.
Goals of the New Corporate Tax in the UAE
- Global Investment Hub: Establishing the UAE as a world-class investment and business destination.
- Transparency: Keeping taxes transparent and avoiding unfavorable tax consequences.
- Strategic Development: Accelerating the UAE's development and transformation.
- Best Practices: Encouraging accountability and enforcing best tax practices
Corporate Tax Rates and Enforcement Date
Corporate tax will be effective for fiscal years beginning on or after June 1, 2023. The first tax returns will be filed in 2024.
Tax Rates
- 0%: Taxable income up to AED 375,000 (approx. USD 102,095).
- 9%: Taxable income over AED 375,000.
- OECD Pillar Two: A tax rate for major multinational corporations meeting specific conditions.
Enforcement Dates
| Financial Year-End | First Tax Period |
|---|---|
| 30 June | 1st July 2023 - 30th June 2024 |
| 31 December | 1st January 2024 - 31st December 2024 |
Untaxed Income
Corporate tax does not apply to:
- Employee salaries or income.
- Dividends, capital gains, and other personal income from shares or assets.
- Real estate investments without a business license.
- Interest and other bank account or savings plan income.
- Qualifying intra-group transactions and reorganizations.
Free Trade Zone Benefits
The UAE government maintains its commitment to businesses in free trade zones by offering tax benefits if conditions are met. However, free zone businesses with mainland operations will be subject to standard corporate tax for income from such activities.
Registration and Deregistration
- Registration: All businesses subject to CT must register with the FTA within the prescribed period and obtain a Tax Registration Number.
- Deregistration: Businesses must notify the FTA within three months of cessation (e.g., liquidation).
Filing, Payment, and Refund
- Filing: One tax return and supporting schedules per tax period, submitted within nine months of each period's end.
- Payment: CT payments due within nine months of the tax period's end.
- Refund: Refunds can be requested if due.
Documentation Requirements
Businesses must maintain financial and other records for CT return compliance. Certain exempt individuals must also keep records to verify their exemption status. Free zone persons must have audited financial statements to qualify for the UAE CT regime.
Key Areas of Practice for Our Tax Advisors
Our expert tax advisors assist clients in various areas, including:
- Tax disputes
- Problems with tax returns
- Tax penalties
- Valuation disagreements
Our Corporate Tax Services
Ensure smooth submission to the Federal Tax Authority with our comprehensive services:
- Corporate Tax Registration
- Corporate Tax Deregistration
- Corporate Tax Review and Filing
- Corporate Tax Refund
Corporate Tax for Free Zone Companies
Free zone companies considered Qualifying Free Zone Persons can benefit from a preferential 0% tax rate on qualifying income if they meet the following criteria:
- Maintain adequate substance in the UAE.
- Generate qualifying income.
- Not elect to be subject to standard corporate tax rates.
- Comply with transfer pricing requirements.
If a Qualifying Free Zone Person fails to meet these conditions, they will be subject to standard corporate tax rates from the beginning of the tax period in which the failure occurred.
Why Choose Us?
Choosing the right VAT service provider is crucial for ensuring compliance and optimizing your tax strategy. Here’s why you should partner with us:
- Expertise: Our team comprises seasoned VAT professionals with extensive experience in the UAE tax landscape.
- Tailored Solutions: We offer customized VAT solutions to meet the unique needs of your business.
- Comprehensive Support: From registration to dispute resolution, we provide end-to-end VAT services.
- Proactive Approach: We stay updated with the latest VAT regulations to ensure your business remains compliant.
Ensure your business complies with VAT regulations and optimizes its tax strategy by partnering with us. Contact us today to learn more about our VAT services in the UAE.