Do you want to operate your business in Dubai, UAE? You must know about the mandatory rules and laws regarding businesses and taxation in UAE. Businesses and commercial activities performed by individuals or legal entities in the United Arab Emirates will have to pay annual corporate tax. The CT will apply to all businesses working across the UAE. Here are the top FAQs on Corporate Tax in UAE that you must give a read.
What is Corporate Tax?
Corporate Tax – is a form of direct tax, also referred to as “Business Profits Tax” or “Corporate Income Tax” in other jurisdictions. The tax is directly imposed on the profit or net income of businesses or corporations operating in the UAE.
Why is the UAE introducing Corporate Tax?
Introducing corporate tax across the UAE indicates the UAE’s commitment to meeting international taxation standards to ensure tax transparency throughout each state and to prevent insufficient tax practices. It will help enhance the UAE’s position as an ideal global hub for investment and businesses worldwide helping in accelerating its strategic development and ensuring achieving goals on a wider scale.
Is the United Arab Emirates the first country to introduce Corporate Tax?
Fortunately, no. Many countries around the world have already introduced a comprehensive CT regime including the many GCC Member States as well.
When will the CT become effective in UAE?
The Corporate Tax will become effective for financial years starting on or after 1 June 2023.
- A business with a financial year beginning from 1 January 2023 with an ending on 31 December 2023, is subject to corporate tax from 1 January 2024.
- Similarly, a business with a financial year beginning from 1 July 2023 with an ending on 30 June 2024, will be subject the corporate tax from 1 July 2023.
Will the corporate tax be imposed on every business throughout the UAE?
The Corporate Tax, UAE is a federal tax which is why each business or corporation operating in any Emirate of the UAE is subject to the CT.
What the Federal Tax Authority will be responsible for?
The effective enforcement of Corporate Tax, administration and collection of CT are the core roles and responsibilities of the Federal Tax Authority in the UAE.
What the Ministry of Finance will be responsible for?
The Ministry of Finance will act as a “competent authority” to deal with the internal exchange of information regarding taxation as well as multilateral or bilateral agreements.
How to evaluate whether a legal entity operates a “business” that is within the scope of the Corporate Tax in UAE?
All business or corporate level activities performed by a legal entity will be considered “business activities” and therefore be within the scope of the corporate tax, UAE.
How to evaluate whether an individual operates a “business” that is within the scope of the Corporate Tax in UAE?
This will typically be done by reference to the individual having a permit to undertake relevant professional, industrial or commercial activities in the UAE or having a business license.
How to evaluate the business income or profit that will be subject to Corporate Tax, UAE?
The net profit of a corporation is typically the amount stated in the business’s financial statements organized according to the international accounting standards. The amount of income of profit subject to the CT would be the accounting net profit of a business.
What would be the Corporate Tax rates in the UAE?
The corporate tax in the UAE varies in accordance with the certain amount of incomes of the businesses or corporations operating in each Emirates.
- Above AED 375,000 – 9% for taxable income
- Up to AED 375,000 – 0% for taxable income.
Will an individual’s salary income or employment income be subject to Corporate Tax, UAE?
Corporate tax in the UAE will not be applied on employment incomes or individuals’ salaries whether obtained from the private sector or public one.
Will CT be applied to an individual who keeps a commercial license to perform business activities in Dubai?
To put it simpler, business income generated keeping a commercial license in the UAE will deem within the scope of Corporate Tax, UAE.
Will CT be applied to an individual’s investment returns in UAE?
Fortunately, no. Corporate tax will not be applied on individuals’ investment returns, dividends, incomes generated from owning shares, capital gains or securities in their personal capacity.
Will CT be applied to income earned by a freelance professional in UAE?
No corporate tax will be payable until or unless the annual net income of the person – carrying out freelance professional activities, is above AED 375,000. Moreover, the CT would typically apply to income generated from certain activities under a freelance permit or license.
Will income obtained by bank deposits be subject to CT, UAE?
Incomes or interests obtained by bank deposits would not be subject to corporate tax UAE. It includes saving schemes as well.
Will anyone have an exemption from corporate tax UAE?
Businesses or organizations involved in the extraction of natural resources would be outside within the scope of the CT and will persist subject to Emirate level taxation.
Will a foreign business or an individual in UAE be subject to CT?
Individuals or foreign businesses would be subject to corporate tax UAE only if they operate businesses in the country in a regular or ongoing manner.
Will income generated by foreigners be subject to corporate tax UAE?
Corporate tax UAE, will not be imposed on a foreign investor’s income obtained through dividends, interests, capital gains, royalties and other returns.
Will a business operating in a free zone be subject to corporate tax UAE?
Businesses that operate in free zones would be subject to the corporate tax, UAE.
Does a business operating in a free zone need to register and file Corporate Tax returns?
Yes. A company developed in a free zone will require to register and file a corporate tax return in UAE.
If a business establishes in a financial free zone, will the CT treatment be different?
No. The CT treatment applying to companies in free zones would be the same around all free zones.
Will the CT be applied to the oil and gas sectors in the UAE?
No. Businesses involved in activities pertaining to natural resources will be outside of the scope of CT and remain under Emirate level taxation.
Will the CT be levied on the banking sector in the UAE?
The banking sector will be within the scope of the corporate tax in UAE.
Will the CT be levied on the real estate sector in the UAE?
Companies involved in the real estate construction, management, development, brokerage and other activities will be within the scope of the CT in UAE.
Will companies or businesses have to register for corporate tax purposes in UAE?
Yes. Businesses will have to register for corporate tax purposes in the UAE.
How often a business or company operating in UAE will have to file for a CT return?
Considering the fact that a financial period is typically a year, the businesses or companies will have to file for a CT return only once – per financial period. also, no advance or provisional CT filings would be required.
How the CT return will have to be filed?
Businesses or companies are supposed to file a CT return electronically.
Will companies or corporations be required to pay tax in advance in the UAE?
No. Businesses or companies will not be required to pay corporate tax in advance.
Will there be any penalties for non-compliance under the Corporate Tax in the UAE?
Similar to other taxations like Value Added Tax, businesses or companies will be subject to penalties in case of non-compliance under the CT in UAE.
How Avyanco can help you with corporate tax in UAE?
Corporate Tax compliance in Dubai, UAE is a must for any business operating in the country under federal law. The tax compliance process many times gets tricky and lengthy, thus businesses often need to hire a credible business financial partner who can not only assist them with taxation policies, laws and requirements in the UAE but help them meet tax compliance successfully. Avyanco is the leading financial advisory service that strives to help you with your business’s CT compliance as well as guide you on how to sustain your financial growth seamlessly.