Corporate Tax in UAE
What is Corporate Tax?
The UAE Ministry of Finance introduced a Corporate Tax on business profits, effective June 1, 2023. This tax reform aims to promote small and medium enterprises by implementing an introductory statutory tax rate of 9% on corporate profits exceeding AED 375,000 ($102,000). In contrast, profits below that threshold will be exempt from taxation. Compliance with corporate tax regulations is mandatory for all applicable companies in the UAE, including filing annual tax returns and maintaining proper accounting records following the relevant laws and regulations.
The corporate Tax UAE was introduced to assist the UAE in achieving its strategic goals and hasten its growth and transition. With the UAE's vast network of double tax treaties, the assurance of a competitive corporate tax structure that complies with international norms would solidify the UAE's position as a top business and investment location. Given the UAE's status as a worldwide financial and economic center, the UAE Corporate Tax Code draws on best practices worldwide and contains well-recognized and respected concepts. As a result, the UAE Corporate Tax Law is ensured to be clear in its ramifications and easy to understand.
What is Corporate Tax Rate in UAE?
Corporate Tax will be levied at a headline corporate tax rate of 9% on Taxable Income exceeding AED 375,000. Taxable Income below this threshold will be subject to a 0% rate of Corporate Tax. Corporate Tax will be charged on Taxable Income as follows:
1. Resident Taxable Persons
- 0% corporate tax rate for taxable Income not exceeding AED 375,000 (This amount is to be confirmed in a Cabinet Decision)
- 9% corporate tax rate for taxable Income Exceeding AED 375,000
2. Qualifying Free Zone Persons
- 0% corporate tax rate for Qualifying Income
- 9% corporate tax rate for taxable Income that does not meet the Qualifying Income definition
Applicability of Corporate Tax in the UAE
Corporate Tax will apply to:
- All businesses and individuals conducting business activities under a commercial license in the UAE.
- Free zone businesses (The UAE Corporate Tax regime will continue to honor the Corporate Tax incentives currently being offered to free zone businesses that comply with all regulatory requirements and do not conduct business set up in the UAE's mainland.)
- Foreign entities and individuals only if they conduct a trade or business in the UAE in an ongoing or regular manner.
- Banking operations.
- Businesses engaged in real estate management, construction, development, agency, and brokerage activities.
Who is Subject to UAE Corporate Tax?
The following "Taxable Persons" are generally subject to corporate Tax in UAE:
- UAE corporations and other legal entities incorporated in the UAE or effectively managed and controlled there."
- Natural people (individuals) who engage in business or engage in commercial activity in the UAE following the provisions of a Cabinet Decision to be announced in due course; and
- Non-resident legal entities with a permanent presence in the UAE are referred to as non-resident juridical persons.
- Legal entities created in a UAE Free Zone are also considered "Taxable Persons" for corporate Tax purposes and are thus subject to the regulations outlined in the corporate tax law. But if a Free Zone Person satisfies the requirements to be regarded as a Qualifying Free Zone Person, they may take advantage of a Corporate Tax rate of 0% on their Qualifying Income.
- If a non-resident individual does not have a permanent establishment in the UAE or receives Income from the country unrelated to their permanent establishment, withholding Tax (at a rate of 0%) may apply. For the benefit of the income recipient, the payer collects withholding Tax, a kind of corporate Tax, at the source. There are withholding taxes in many tax systems, and they often apply when dividends, interest, royalties, and other forms of Income are paid internationally.
Qualifying Free Zone Persons
Following a qualifying income basis, qualified free zone residents are entitled to 0% Corporate Tax. These corporations must fulfil the qualifications and standards outlined in Article 18 of the Corporate Tax Law to be classified as eligible free zone people.
The following Income and associated expenses will not be included in calculating the Taxable Income:
- Profit distributions, such as dividends, from a juridical person that is a resident.
- Income from a Participating Interest in a foreign juridical entity, including dividends and other profit distributions.
- Every additional profit from a Participating Interest.
- Foreign Permanent Establishment income that satisfies legal requirements.
- Income that a non-resident person receives from operating ships or airplanes in international transportation complies with the requirements of the law.
Exempted Person From Corporate Tax UAE
Under Article 4 of the Corporate Tax Law, the following Persons shall be exempt from Corporate Tax:a) A Government Entity.
b) A Government Controlled Entity.
c) A Person engaged in an Extractive Business that meets the following conditions:
- The Person directly or indirectly holds or is interested in a right, concession, or License issued by a Local Government to undertake its Extractive Business.
- The Person is effectively subject to Tax under the applicable legislation of an Emirate.
- The Person has notified the Ministry in the form and manner agreed with the Local Government.
d) A Person engaged in a Non-Extractive Natural Resource Business that meets the following conditions:
- The Person directly or indirectly holds or is interested in a right, concession or Licence issued by a Local Government to undertake its Non-Extractive Natural Resource Business in the State.
- The Person's Income from their Non-Extractive Natural Resource Business is derived solely from Persons undertaking a Business or Business Activity.
- The Person is effectively subject to Tax under the applicable legislation of an Emirate following the provisions of Clause 6 of this Article.
- The Person has notified the Ministry in the form and manner agreed with the Local Government.
e) A Qualifying Public Benefit Entity
f) A Qualifying Investment Fund.
g) A public pension or social security fund, or a private pension or social security fund that is subject to regulatory oversight of the competent authority in the State and that meets any other conditions that the Minister may prescribe.
h) A juridical person incorporated in the State that is wholly owned and controlled by an Exempt
Person and conducts any of the following:
- Undertakes part or whole of the activity of the Exempt Person.
- Is engaged exclusively in holding assets or investing funds for the benefit of the Exempt Person.
- Only carries out activities that are ancillary to those carried out by the Exempt Person.
- Any other Person as may be determined in a decision issued by the Minister.
When is a Free Zone Person a Qualifying Free Zone Person?
A Qualifying Free Zone Person may take advantage of a special Corporate Tax rate of 0% on their "Qualifying Income" exclusively. A Free Zone Person must meet the following criteria to qualify as a Qualifying Free Zone Person:
- Maintain adequate substance in the UAE;
- Derive "Qualifying Income;
- Not have made an election to be subject to Corporate Tax at the standard rates; and
- Comply with the transfer pricing requirements under the Corporate Tax Law.
A Qualifying Free Zone Person may be subject to additional requirements by the Minister.
- Every tax period must consist of the twelve (12) month period for which the taxable Person files financial statements.
- Depending on the terms established by the FTA, each tax period may be changed upon application by the taxpayer.
Does Corporate Tax apply to non-residents as well?
Suppose a non-resident company has a permanent presence in the UAE. In that case, it must additionally pay corporate tax on that company's revenue and any income that comes from sources within the control of the Government (such as the sale of products, the rendering of services, etc.). Non-residents are not required to pay company tax on their revenue from flying airplanes and operating ships in international space. Income received via an investment manager on real estate or any other investment is not subject to corporation tax for non-residents.
Farahat & Co - Corporate Tax Services in UAE
Only some people are aware of their actions to retain their position as tax-paying people and enterprises regarding taxation. Obtaining the services of expert Corporate Tax Consultants becomes crucial at this point, as it protects persons and organizations from legal repercussions. Keep your tax affairs in order, pay your dues on time with the help of a Corporate Tax Consultant, and continue to enjoy the prestige and respect that comes with paying your taxes. Our UAE Corporate Tax Consultants have extensive expertise in assisting clients in resolving their tax profiles through legal ways and applicable exemptions. Similarly, our UAE corporate tax advisory services daily align their tax portfolios with applicable laws and taxes.
Our Seasoned Corporate Tax Consultants Can Assist You With the Following:
- Tax structuring
- Tax planning
- We help you determine legislative changes' impact on your business structure and adapt your tax approach.
- We are providing you with tax advice on potential transactions.
- Assist you with business reorganizations
- Examining the tax implications of commercial agreements or other legal documents
- Assisting with the submission of the Corporate Tax Return.
- Corporate tax registration, return filing, and deregistration
Frequently Asked Questions
Will UAE Corporate Tax apply to all enterprises in each Emirate?
To whom will the UAE Corporate Tax apply?
Will the UAE Corporate Tax apply to foreign companies and persons?
How can you know if someone has a 'company' covered by UAE Corporate Tax?
How can you know if a legal entity has an 'enterprise' that falls under the UAE CT's jurisdiction?
How do you figure up how much of your business earnings or revenue is subject to UAE Corporate Tax?
The amount disclosed in the financial accounts prepared in line with globally accepted accounting standards is the accounting net profit/income of a firm.
Will a person investing in UAE real estate be subject to the UAE Corporate Tax?