Corporate Tax in the UAE

For many years, the United Arab Emirates (UAE) has been a hub for businesses drawn to its tax-friendly environment. However, a new chapter began in June 2023 with the introduction of corporate tax. Corporate tax in UAE is a crucial aspect of running a business, as it plays a significant role in the country’s economy.

In simple terms, corporate tax is a tax on the profits earned by businesses. It is essential for businesses in the UAE to understand and comply with corporate tax regulations to ensure smooth operations and avoid any legal issues. The corporate tax rates, taxable profits, exemptions, deductions, credits, filing procedures, and penalties are all critical aspects that businesses must be well-versed in.

Therefore, here we will equip you with everything you need to know about corporate tax in the UAE.

A corporate tax, also known as a federal tax or company tax, is a direct tax levied on the income or capital of corporations and other similar legal entities. The UAE introduced a federal corporate tax (CT) in 2023 and it applies to the net profits of most businesses operating across all the emirates.

Corporate Tax Rates in UAE:
9%: This is the standard rate that applies to all taxable profits exceeding AED 375,000 (roughly $102,000 USD).
0%: There’s a zero corporate tax rate for taxable income up to AED 375,000. This offers some relief for small businesses.
However, there are some exceptions, like:
Foreign banks: These may be subject to a flat 20% rate under separate emirate-level decrees.
Oil & Gas companies: These have individual tax agreements.
Multinational Enterprises (MNEs): Those under the OECD’s Base Erosion and Profit Sharing (BEPS) 2.0 framework with global revenue exceeding AED 3.15 billion (approx. USD 860 million) may have different rates applied.

A “taxable person” in the UAE corporate tax system refers to any entity liable to register, file tax returns, and potentially pay corporate tax. These can be:

• Resident Persons: Companies in the UAE, foreign companies managed there, and individual businesses with UAE turnover exceeding AED 1 million annually.
• Non-Resident Persons: Companies with a UAE presence (permanent establishment) or those earning UAE-sourced income.

UAE-Sourced Income: If a non-resident company has a physical PE in the UAE, profits generated through that PE are considered UAE-sourced income. The exact rules for determining taxability depend on the nature of the income and any applicable Double Taxation Agreements (DTAs).

Companies must file corporate tax returns with the government regularly, typically annually. The tax return will calculate the company’s taxable income, which is the company’s total income minus certain deductions and allowances. The company’s taxable income is then multiplied by the corporate tax rate to determine the amount of tax owed.

The introduction of corporate tax in the UAE is expected to significantly impact the country’s business environment. It is anticipated to attract foreign investment, enhance the UAE’s competitiveness, and promote economic diversification.

Businesses that adapt to the new corporate tax regime and leverage its potential are well-positioned to thrive in the UAE’s dynamic business environment.

The UAE corporate tax regime, introduced in 2023, provides exemptions for certain types of businesses and income. This includes:

• UAE Government entities (such as local government entities, ministries, departments, and authorities).
• Extractive businesses (such as extraction of natural resources including oil, gas, and minerals).
• Qualifying public benefit entities.
• Qualifying investment funds, as defined in the UAE Corporate Tax Law, are exempt from corporate tax.
• Free zone businesses will be subject to the CT regime. However, there will be consideration for the incentives being offered to free zone businesses if they comply with all the regulatory requirements.
• A business established in free zone jurisdiction will need to register and file corporate tax returns.

• The standard corporate tax in UAE rate is set at 9%, with a zero-rate applicable to taxable profits below AED 375,000.
• Taxable profits are calculated based on accounting principles generally accepted in the UAE (UAE GAAP) and International Financial Reporting Standards (IFRS). Certain income, such as dividends and capital gains, is exempt from corporate tax.
• Various deductions and credits available, such as those for direct and indirect business expenditures, research and development for business.
• Businesses must file corporate tax returns and pay tax annually.

For any business financial year which starts on or after the 1st of June 2023 will be subject to corporate tax the very same year. For example, if a company’s financial year starts on 1st August 2023 and ends on 31st July 2024, it will be subject to corporate tax from August 2023. This is because it would be the first financial year for the company after the CT regime.

On the other hand, if for instance a business’ financial year starts on 1st February 2023, it will only become subject to corporate tax the following year, i.e., 1st Feb 2024 to 31st Jan 2025.

As UAE’s business income taxes undergo continuous reforms, staying well-informed and compliant is crucial. Seeking guidance from a tax professional firm is the best way to navigate this evolving landscape.

Our corporate tax advisory services at Pro Services Tax Auditing go beyond conventional offerings. Our expert corporate tax consultants in the UAE assist our esteemed clients on matters such as Corporate Tax Registration, Filing CT Returns, and more. We also explain the latest regulations from the Federal Tax Authority, ensuring our clients are well-informed and can avoid corporate tax fines and penalties.

Dedicated to delivering excellence across all aspects of our services, our clients consistently affirm us as their top choice for a wide range of business requirements, especially Corporate Tax Services in the UAE. For swift assistance or any inquiries related to corporate tax, reach out to Pro Services Tax Auditing in Dubai today. Call us at +971563022779 or email info@professionalservices.ae, and rest assured, your queries will be promptly addressed.