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Will UAE Corporate Tax be Applicable to Businesses in Each Emirate?

The UAE Ministry of Finance (MoF) announced on 31 January 2022 that a new federal corporation tax (CT) system will be adopted in the UAE, effective financial years beginning on or after 1 June 2023. Except for Bahrain, the UAE has the lowest corporate income tax rate in the GCC, at 9%. The UAE Corporate Tax regime was created to incorporate best practices worldwide and reduce compliance costs for enterprises.

What Is Corporate Tax in UAE?

Corporations and other enterprises pay a corporate tax, a direct tax type based on their net revenue or profit. Corporate tax is also known as "Corporate Income Tax" or "Business Profits Tax."

Why Is Corporate Tax Being Introduced In The UAE?

A robust Corporate Tax regime based on worldwide best practices would strengthen the UAE's position as a major global center for business and investment and speed up the country's growth and transformation to meet its strategic goals. The UAE's commitment to fulfilling international standards for tax transparency and combating harmful tax practices is reaffirmed by establishing a Corporate Tax regime.

Applicability Of Corporate Tax Regime In The UAE

The United Arab Emirates has implemented a federal tax structure that applies to all enterprises and commercial activity throughout the UAE. There are, however, several exceptions:

  • Companies that are involved in the exploitation of natural resources. These will continue to be subject to the relevant Emirate tax decrees.
  • Individuals earn money in their personal capacity (e.g., salary, investment income) as long as the source of income does not need a commercial license.
  • Businesses registered in Free Trade Zones must meet all regulatory standards and not conduct business with the UAE mainland.

The newly announced UAE Corporate Tax regime establishes a three-tiered system:

  • All annual taxable profits up to AED 375,000 will be taxed at zero percent.
  • All annual taxable profits over AED 375,000 will be taxed at 9%.
  • A separate tax rate for major multinational corporations that satisfy particular conditions is established following OECD 'Pillar Two' of the Base Erosion and Profit Shifting plan. In the context of the worldwide minimum effective tax rate recommended under the OECD Base Erosion and Profit Shifting Project's 'Pillar Two,' "large" refers to a multinational firm with a consolidated global profit above EUR 750 million (c. AED 3.15 bn).

What Is A Multinational Company?

A Multinational Company has operations in its home country and other nations via a foreign subsidiary, branch, or another form of presence/registration. Simply producing money from outside its home country without establishing a foreign presence or registering as a multinational corporation does not qualify a company as a global corporation.

Will There Be Any Tax Levied On The Income And Real Estate?

Income from employment, real estate, or other investments, and any other income not derived from a company or commercial activity licensed or otherwise authorized to be conducted in the UAE, shall be exempt from corporation tax.

Tax Exemption For Corporations

Tax Exemption for Corporations shall be applied in the following situations:

  • A person's salary or money earned via a job. On the other hand, individuals will be subject to company tax if their earnings are derived from work done under a freelancing license or permit.
  • Individuals investing in real estate in their capacity, assuming they do not require a company license or UAE license.
  • Dividends, capital gains, and other income earned due to owning stocks or other assets.
  • Bank accounts and savings plans provide individuals with interest and other sources of income.

Will A Firm In A Free Zone Be Subject To UAE Corporate Tax?

Free zone enterprises will be subject to UAE Corporate Tax. However, the Corporate Tax in UAE regime will maintain the Corporate Tax advantages available to free zone businesses that meet all regulatory criteria and do not conduct business with the mainland. UAE

To operate in a free zone, a company must register and file a CT return. In due course, more information on the compliance duties of free zone firms will be available. The UAE Corporate Tax requirement for enterprises operating in free zones will be uniform throughout all free zones.

How Farahat & Co. May Assist You?

When it comes to the intricate issue of taxation, not everyone is conscious of their activities to keep their status as tax-paying individuals and businesses. At this stage, retaining the services of UAE Corporate Tax experts is critical, as it protects individuals and companies from legal consequences. With the assistance of UAE Corporate Tax experts, you can keep your tax affairs in order and pay your dues on time, maintaining the status and respect that comes with paying your taxes. Our Dubai corporate tax professionals have a wealth of experience aiding businesses in addressing their tax profiles using legal methods and available exemptions. Our UAE corporate Tax experts regularly help companies match their tax portfolios with applicable laws and taxes.

Read also: Introduction of Federal Corporate Tax in UAE on Business Profits by the Ministry Of Finance on or After 1 June 2023

Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions.