What is UAE Corporate Tax?
The United Arab Emirates (UAE) has introduced a comprehensive corporate tax policy, levied on profits made by businesses and corporations in the UAE, throughout an accounting period. This regime is designed to solidify the UAE’s position as a leading global hub for business and investment, accelerate UAE’s strategic development and adhere to international best practices for tax transparency and preventing tax violations.
When did UAE Corporate Tax come into effect?
The UAE Corporate Tax has been effective for financial years of businesses starting on or after June 1, 2023. This means that if the financial year of a business begins on 1 July 2023 and ends on 30 June 2024, then it is subject to UAE Corporate Tax from 1 July 2023. On the other hand, if the financial year of a business started on 1 January 2023 and ended on 31 December 2023, it would be subject to UAE Corporate Tax from 1 January 2024.
Who is Subject to UAE Corporate Tax?
The UAE corporate tax is applicable to all businesses and commercial activities operating within the seven emirates of the UAE. This includes foreign businesses that are managed and controlled in the UAE, as well as foreign businesses operating in the UAE through a permanent establishment.
Who is exempt from UAE Corporate Tax?
There is a list of entities that are automatically exempted from UAE Corporate Tax. This includes the Federal and Emirate Governments and their departments, as well as the companies that are wholly owned and controlled by a government entity to carry out specific mandated activities. Public benefit entities, charities and investment funds that meet certain criteria are also exempt from UAE Corporate Tax, as are public or private pension or social security funds.
It is also important to note that businesses involved in the extraction of the UAE’s natural resources are subject to Emirate-level taxes that fall outside the scope of UAE Corporate Tax. Moreover, certain businesses may be subject to both Corporate Tax and Emirate-level taxation.
Individuals earning their personal income through salary or investment are not subject to corporate tax, as long as the income does not come through a commercial activity.
Corporate Tax Rates
The UAE Corporate Tax rates follow a tier system. This means that businesses with annual taxable profits under AED 375,000 are subject to zero corporate tax rate. Businesses with annual taxable profits over AED 375,000 are subject to a 9% corporate tax rate.
Registration and Tax Returns
Every taxable entity is required to electronically register themselves for UAE Corporate Tax with the authority within a prescribed timeline and obtain a Tax Registration Number. This registration is separate from being registered for Value Added Tax purposes.
Taxable entities need to prepare and maintain financial statements for the purpose of calculating their taxable income. They are required to maintain a record of all documents that support their corporate Tax Return or any other filing made with the Authority. Additionally, exempted businesses are also required to maintain documents that support their exempt status.
Corporate Tax law requires businesses to file only one tax return per taxable period. This helps keep the administrative burden on taxpayers to a minimum.
Tax Groups
Businesses subject to Corporate Tax can form a tax group. This will allow them to file a single corporate tax return covering all members of the group. However, in the event that companies cannot form a tax group, they will be required to file corporate tax returns on an individual basis.
Conclusion
The UAE corporate tax policy provides a competitive and transparent tax environment for businesses operating in the UAE. Understanding the key aspects of this policy, including taxable income, exemptions, compliance requirements, and payment procedures, is essential for businesses to navigate the system effectively.
