Corporate Tax in UAE is also known as “Corporate Income Tax” or “Business Profits Tax”. Mainly, corporate tax is a form of direct tax levied that is implemented on the net income or profit of corporations as well as on other businesses. In the United Arab Emirates (UAE), a deep understanding of corporate tax is important for both local and foreign companies because it’s a federal tax that applies across all of the Emirates.
Moreover, as a country known for its business-friendly environment and tax advantages, the UAE offers innovative opportunities and challenges when it comes to corporate taxation. Let me lift the curtain from the basics of corporate tax in the UAE, including its principles, rates, and exemptions.
Introduction of UAE Corporate Tax
One year ago, on January 31, 2022, the tax landscape in the region changed once again when the United Arab Emirates (UAE) Ministry of Finance (MoF) announced the release of a new federal corporate tax system. This change was effective for financial years commencing on or after June 1, 2023.
For example, if a business’s financial year starts on July 1, 2023, and ends on June 30, 2024, it will have to pay UAE Corporate Tax from July 1, 2023. Similarly, if a business’s financial year starts on January 1, 2023, and ends on December 31, 2023, it will start paying UAE Corporate Tax from January 1, 2024
Understanding Corporate Tax in UAE
Well, unlike many other countries, the UAE doesn’t impose federal corporate income tax on most businesses. In Fact, each emirate has its own regulations regarding corporate taxation. However, it’s important to note that in 2024, there will be no income tax in Dubai. Instead, corporate tax will be applied to companies, but only to their taxable income at a rate of 9%.
How to Prepare for UAE CT?
If you want to assess UAE Corporate Tax for your business, it’s highly recommended that you visit the official websites of the Ministry of Finance and the Federal Tax Authority. This will provide you with a comprehensive understanding and detailed information about the Corporate Tax Law and its implementing decisions. Additionally, the additional information will help you determine whether your business needs to register, if it needs to pay corporate tax, and from what date it becomes applicable.
Corporate Tax UAE Applies to:
Here is the detail of the Corporate tax on which it’s applied;
- All types of businesses that are related to real estate management, construction, development, agency as well as brokerage activities.
- Banking operations
- Corporate tax is applied to all businesses that are conducting business activities under a commercial license in Dubai and the UAE.
- Foreign entities pay corporate tax only if they regularly do business in UAE.
- Free zone businesses
Exempted from UAE Corporate Tax
Here are the below-mentioned personas, who are automatically exempted from UAE Corporate Tax:
- Any company that is entirely owned by the Government Entity, carrying out mandated operations, and is listed in the Cabinet Decision.
- All Emirates Governments and their departments, as well as all public institutions.
- Juridical person
- A person engaged within an extractive business and a non-extractive natural resource business in the UAE.
- UAE Corporate Tax will not be applied to the interest and other income earned by individuals from bank deposits or savings schemes.
- An individual’s earnings, salary, and employment income are from the public or private sectors.
CT Rate
As per the Ministry of Finance, the Corporate Tax rates are as follows: a 0% tax rate applies to taxable income up to AED 375,000, while a 9% tax rate applies to taxable income exceeding AED 375,000.
Wrapping Up
In a nutshell, taxes are the primary source of revenue for most countries worldwide because they help governments generate additional revenue and funds for public expenditure. Corporate tax in UAE presents a unique set of opportunities and challenges for businesses. However, the country doesn’t impose federal corporate income tax. Additionally, the Federal Tax Authority is only responsible for the administration, collection and enforcement of Corporate taxes; for more information, you can visit the website Federal Tax Authority (FTA)