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Corporate Tax in UAE

Corporate Tax in UAE is a direct Tax paid on corporations and other enterprises’ net income or profits. The UAE Ministry of Finance announced on January 31, 2022, the implementation of a federal corporate tax in the UAE, which will be effective for fiscal years beginning on or after June 1, 2023. Such taxes are generally computed on a business’s accounting net profit/income after adjusting for certain items specified in UAE Corporate Tax law.

What is Corporate Tax?

Corporate Tax in UAE is a direct Tax paid on companies and other enterprises’ net revenue or profit. In other countries, Corporate Tax is also known as “Corporate Income Tax” or “Business Profits Tax.”

Applicability of Corporate Tax in UAE?

The UAE corporate tax policy will be among the most competitive globally, with a standard statutory tax rate of 9%.
For the encouragement of small firms and startups, a 0% tax rate applies to taxable earnings up to Dh375,000. Personal income from employment, real estate, and other investments, and any other income generated by people not derived from a business or different kind of commercial activity licensed or otherwise authorized to be conducted in the UAE, will be exempt from corporation tax.

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Importance of UAE Corporate Tax

Corporate Tax in UAE

A competitive Corporate Tax regime based on worldwide best practices would strengthen the UAE’s position as a major global center for business and investment and expedite the UAE’s development and economic growth to meet its strategic goals. Implementing a Corporate Tax regime underscores the UAE’s commitment to upholding international tax transparency requirements and eliminating harmful tax practices.

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Types of Taxes imposed by UAE Government?

Individuals in the UAE are not subject to income tax, but they are subject to various taxes. The following taxes are imposed in the UAE, according to the official UAE Government website:

  • 1. Excise tax

It is imposed on some commodities known to be hazardous to human health or the environment. To purchase such items, consumers must pay a higher price. The goal is to “lower consumption of unhealthy and damaging goods while simultaneously increasing government income that may be used to fund useful public programs.”
Carbonated beverages, energy drinks, cigarettes, electronic smoking devices and tools, liquids used in such devices and instruments, and sweetened beverages are all subject to the Tax.

  • 2. VAT (Value Added Tax)

VAT is a tax levied on the purchase or use of goods and services. At the point of sale, a 5% VAT is applied. Businesses collect and remit taxes on behalf of the government. VAT will give the UAE a new stream of revenue, which will be used to continue providing high-quality public services. It will also help the government reduce dependency on oil and other hydrocarbons as a revenue source.

  • 3. Taxes levied on tourist attractions.

According to the government website, restaurants, hotels, hotel flats, resorts, and other businesses in the UAE “may impose one or more of the following taxes:
– A 10% tax on the room rate
– A 10% service charge
– A 10% increase in municipal fees
– Municipal Tax (ranging from 6 to 10%)
– A tourist charge of 6%.

When does the UAE’s Corporate Tax regime come into effect?

For financial years beginning on or after June 1, 2023, the UAE Corporate Tax regime will take effect.
For Example: From July 1 2023 to June 30 2024, a firm with a financial year commencing on July 1, 2023, and ending on June 30 2024, will be subject to UAE CT (which is the beginning of the first financial year that starts on or after June 1 2023)
A company with a (calendar year) financial year that begins on January 1 2023, and ends on December 31 2023, will be subject to UAE CT commencing on January 1 2024, which is the first financial year that begins on or after June 1 2023.

Applicability of Corporate Taxes in Free Zones

Free zone enterprises will be subject to UAE Corporate Tax. However, the UAE Corporate Tax regime will maintain the Corporate Tax benefits available to free zone businesses that meet all regulatory criteria and do not conduct business with the mainland UAE.
Corporate Tax would apply to free zone enterprises. Such entities will be required to comply with compliance duties (registration and filing of returns). To respond to the requirements of Corporate Tax in the UAE, firms must establish compliance ecosystems inside their enterprises.
Farahat & Co. is dedicated to providing help and direction in assessing and establishing corporate tax systems tailored to your organization’s needs.

Is there a Corporate Tax in the UAE for any form of business?

Except for natural resource exploitation, the Tax will apply to all businesses, including free zones. Personal income from work, real estate, and other investments and any other income not requiring a business license or license to be carried out in the UAE will be exempt from corporation tax.

Other Frequently Asked Questions(FAQ) on Corporate Tax

Q1. Will UAE Corporate Tax apply to all enterprises in each Emirate?

Yes, as the UAE Corporate Tax is a federal tax, it applies to states of the Emirates.

Q2. To whom will the UAE Corporate Tax apply?

Except for exploiting natural resources, which will be subject to Emirate-level corporate taxes, UAE CT will apply to all UAE firms and commercial activities.

Q3. Will the UAE Corporate Tax apply to foreign companies and persons?

Only foreign firms and people that conduct continuous or regular trade or business in the UAE will be subject to UAE Corporate Tax.

Q4. How can you know if someone has a “company” covered by UAE Corporate Tax?

It is usually accomplished by referencing the individual’s possession of (or requirement to get) a business license or permission to engage in the relevant commercial, industrial, and professional activity in the UAE.

Q5. How can you know if a legal entity has an “enterprise” that falls under the UAE CT’s jurisdiction?

All actions carried out by a legal entity shall be considered “business activities” and hence fall within the UAE Corporate Tax.

Q6. How do you figure up how much of your business earnings or revenue is subject to UAE Corporate Tax?

The accounting net profit/income of a firm will be the taxable income after adjustments for specific elements to be stipulated under UAE Corporate Tax legislation.
The amount disclosed in the financial accounts prepared in line with globally accepted accounting standards is the accounting net profit/income of a firm.

Q7. Will a person investing in UAE real estate be subject to the UAE Corporate Tax?

Individuals investing in real estate in their personal capacity should be exempt from the UAE Corporate Tax if they are not required to get a commercial license or licence to do such business in the UAE.

Q8. Will a freelance professional’s earnings be subject to UAE CT?

Although no CT will be charged unless the freelance professional’s yearly net income reaches AED 375,000, the UAE CT will generally apply to revenue received from activities carried out under a freelancing license/permission.

How Farahat & Co. may assist you?

Not everyone is aware of their actions to retain their position as tax-paying people and enterprises when it comes to the complicated subject of taxation. Obtaining the services of expert tax professionals becomes crucial at this point, as it protects persons and organizations from legal repercussions. You may keep your tax affairs in order and pay your dues on time with the help of a Tax professional, and continue to enjoy the prestige and respect that comes with paying your taxes. Our Dubai Corporate tax experts have extensive expertise in assisting clients in resolving their tax profiles through legal ways and applicable exemptions. Similarly, our UAE corporate tax advisory services in aligning their tax portfolios with applicable laws and taxes daily.

Our seasoned tax consultants can assist you with:

  1. Tax structuring
  2. Tax planning
  3. Assisting you in determining the impact of legislative changes on your business structure and adapting your tax approach.
  4. Providing you with tax advice on potential transactions.
  5. Assisting you with business reorganizations
  6. Examining the tax implications of commercial agreements or other legal documents
  7. Assisting with the submission of the Corporate Tax Return.

To know more about Corporate Tax in UAE, please don’t hesitate to contact us today.