Corporate Tax in UAE – Everything You Need to Know (Updated Guide)

What is Corporate Tax in UAE?

Corporate tax is a type of tax that is applicable to the profits of a corporation. The taxes are paid on a corporation’s taxable income. It is computed by reducing the cost of sold goods selling and marketing, depreciation, research and development, general and administrative expenses, and other operating costs from the total revenue,.

When will Corporate Tax Start in UAE?

The introduction of Corporate Tax is a landmark decision which will benefit UAE in the longevity & will attract Foreign Direct Investment from MNC’s. UAE’s has supplemented its identity from an international oil exporter, and commercial and tourism hub to a global financial destination for business setup. However, on January 31st, the government introduced a federal corporate income tax in UAE for the first time ever. The taxes will be effective from June 1, 2023. Although the rate is kept pretty low at 9%, the business empire was surprised by the revelation. Despite the new ruling, most of the tax-free regime, including personal tax income, remains unaltered.

Why Corporate Tax Rate in UAE?

According to the chief economist at Emirates NBD, Katija Haque, the government aims to progress in diversifying the budget revenue away from oil and That’s precisely how a corporate tax fits into the strategy, and the tax remains low by global standards.

According to the finance ministry, the new corporate tax in UAE is being launched to align with global efforts to battle tax avoidance. Furthermore, the idea is to address the challenges that arise from the digitalization of the global economy. This tax will be levied on all commercial activities and corporations across the country, except for the extraction of natural resources that will remain subject to taxation at the Emirate level.

Who is Applicable for Corporate Income Tax in UAE?

The criteria for corporate tax percentage in UAE is set at:

• 0% tax applicable between AED 0 - AED 375,000
• 9% tax applicable above 375,000

The press release regarding the matter indicates that there will be a different tax rate for giant multinationals, which meet the criteria under “Pillar Two” of the OECD Base Erosion & Profit Shifting project. The “Pillar Two” specifies those MNCs that have consolidated global revenues above EUR 750 million.

Corporate tax will be applicable to the accounting net profit reported in the financial statements of the organization with a few exceptions and adjustments. All tax losses incurred due to corporate tax inclusion can be carried forward to offset taxable income in the future. So, as for the profits, the corporate tax will apply to the adjusted accounting net profit of businesses and organizations.

Who will Not Pay Corporate Tax in UAE?

This implies that individuals will still not be applicable to tax on incomes from employment, equity investments, retain, or any other sort of personal income unrelated to UAE trade or business. The corporate tax exemptions will also be applied to investors who do not conduct business in the country. Given these conditions, it is safe to say that the UAE corporate tax regime is designed to ensure premium practices and minimize the compliance burden on organizations.

The exemption from corporate tax applicability in the UAE will be available for:

• Capital dividends and gains earned from qualifying shareholdings
• Qualifying intra-group transactions and restructuring

What are the Terms & Conditions of UAE Corporate Tax?

• Corporate tax & withholding tax

Cross-border and domestic payments of royalties, interests, dividends, or any other form of payments will not be subject to withholding tax.

• Foreign tax credits

Foreign tax credits will be available for taxation incurred by UAE organizations and businesses on income earned outside the country.

• When to file a corporate tax in UAE?

The corporate tax must be filed electronically once for every financial period. It does not require advance UAE CT payments based on provisional tax returns.

• UAE tax on a group of companies

UAE group companies are allowed to form a tax group and file under one tax return for the whole group. Tax losses can be transferred to other group members.

• Related Party Transaction - Transfer pricing

This tax regime will have transfer pricing (TP) rules and documentation requirements. These must be in accordance with the OECD TP Guidelines.

• Where to file a corporate tax in UAE?

The Federal Tax authority is responsible to administer, collect, and reinforcing the corporate tax in Dubai and across UAE.

Corporate Tax in UAE Freezones

In 2018, the government introduced a value-added tax on the majority of services and goods at a standard 5%. A 20% tax rate was imposed on foreign banks operating in the country. The companies with concession agreements in the petroleum sector were applicable to pay 55% at the emirate level.

Yet, the tax regime was not applicable to the free zones, and the corporate tax regime will continue providing corporate tax incentives offered to free zone businesses. Several free zone businesses are thriving throughout the country and have enjoyed zero taxes and complete foreign ownership, among several other advantages. They can continue to benefit from corporate tax incentives in the future as well. According to the ministry, these businesses must work according to the necessary requirements to benefit from the incentives.

UAE Corporate Tax Compliance

According to a ministry statement, the new regime implies that a standard statutory corporate tax rate in UAE of 9% and a 0% rate for taxable profits will be applicable to support small business startups. The ministry also stated that this new move would pave the way to introduce a global maximum tax rate to apply a different corporate tax rate to large MNCs. Since the regulations are pretty new, there is no further elaboration.

However, it appears to be a reference to the new rules agreed by the Organization for Economic Cooperation & Development in October. One hundred thirty-six countries, including UAE, ensured bringing large companies to pay a minimum tax rate of 15%.

The government’s move to reduce the business profits tax to 9% aligns with the country’s vision and efforts to diversify budget revenues. As a result, reliance on petroleum will be reduced, which will prove to be beneficial for the economy in the years to come.

How Can Avyanco Help You Deal With the New Corporate Taxes in UAE?

Avyanco is one of the leading firms in the country providing professional financial advisory, VAT, and international tax services in UAE. We have a highly dedicated team of individuals offering the best of their capabilities and high-quality service to clients. We are helping our clients align their organization’s working model as per the government’s requirements of the CT in UAE.

In UAE, taxation has been subject to change in recent years. We offer tax advisory services that can ensure that your organization is fully compliant. Being aware of all the changes will help your organization stay compliant and follow the rules and regulations.

Expert Tax Services & Solutions

We offer seamless solutions to companies in UAE for all their taxation requirements, whether indirect or related to Economic substance Regulations. To ensure effective measures, we have a team of highly skilled individuals so they can offer their extensive knowledge to businesses like yours.

As one of the finest tax advisors, our role can help you:

• Develop a clear understanding of the corporate tax regime in the UAE
• We will conduct technical training workshops with the organization so they can overcome the gap and be ready for the day when the taxes are effective.
• Carry out the qualitative impact assessment of the introduction proposed by the government
• Understanding the TP regime on an elevated level.
• Offer you regular support regarding compliance, reporting, and other advisories about tax on groups of companies.
• Identify the required changes through gap analysis and implementation of the legislation.

Our tax services include:

• Specific tax advisory services
• Economic Substance Regulation
• Tax clearance certificates
• Tax residency certificates
• Tax registration, de-registration, and amendments
• Value-added tax
• Impact assessment for VAT
• Assistance for filing of returns with compliance
• Excise tax
• Training seminars for new corporate tax in UAE

WHY CHOOSE AVYANCO’S TAX SOLUTIONS?

• Our tax services and corporate tax support will ensure compliance at the maximum level.
• We are equipped with the latest knowledge of the laws and regulations.
• We can provide accurate tax planning services.
• You can seek benefits from us for your tax compliance strategies with 100% implementation.
• We have an extensive portfolio with years of experience to facilitate you seamlessly.

Avail Corporate Tax Services in Dubai and the UAE with the best corporate tax consultants.