Comprehensive Guide to Corporate Tax in the UAE

The UAE’s newly implemented corporate tax regime marks a significant shift in its taxation policies, aiming to diversify the economy and align with global tax standards. As of June 1, 2023, businesses in the UAE must comply with corporate tax laws, with full implementation for most entities by January 1, 2024. Here’s a detailed breakdown of what corporate tax means, how it impacts businesses, and the steps required to remain compliant.

What is Corporate Tax in the UAE?

Corporate tax is a direct tax levied on the net profits of businesses operating within the UAE. It applies to both local and foreign entities generating income in the region. Unlike VAT, which is levied on consumption, corporate tax is calculated on profits after deducting expenses.

Why Introduce Corporate Tax in the UAE?

1. Diversification of Revenue: Reducing reliance on oil revenues.
2. Global Alignment: Meeting international tax standards, including the OECD Base Erosion and Profit Shifting (BEPS) framework.
3. Economic Sustainability: Supporting the country’s long-term financial health by funding public services like education, healthcare, and infrastructure.

Key Features of UAE Corporate Tax

1. Tax Rates:

   • 0%: Businesses with annual net profits up to AED 375,000.
   • 9%: Businesses with annual net profits exceeding AED 375,000.
   • 15%: Multinational corporations with global revenues exceeding EUR 750 million (AED 3.15 billion).

2. Scope:

   • Applies to corporations, individuals, and foreign entities with taxable income in the UAE.
   • Free zone entities may qualify for a 0% tax rate under specific conditions.

3. Taxable Income:

   • Total revenue after deducting allowable expenses, excluding exempt income.

4. Exemptions:

   • Government entities.
   • Extractive businesses already taxed at the Emirate level.
   • Charitable organizations registered with the Ministry of Finance (MOF).
   • Pension and social security funds.

Who Must Register for Corporate Tax?

1. UAE-Based Corporations: Companies with primary operations or management in the UAE.
2. Foreign Entities: Those with a Permanent Establishment (PE) in the UAE.
3. Free Zone Persons: Subject to conditions for maintaining a 0% tax rate.

Exempt Entities and Income

1. Exempt Entities:

   • Public and government entities.
   • Extractive industries taxed at the Emirate level.
   • Charitable and public benefit organizations.
   • Real estate investment funds.

2. Exempt Income:

   • Dividends from UAE-incorporated entities.
   • Capital gains from selling subsidiary shares.
   • Income from foreign branches where an exemption election is made.

Corporate Tax for Free Zone Entities

Free zones in the UAE offer significant tax benefits under the corporate tax regime. Entities can qualify for a 0% tax rate on certain conditions:

1. Qualifying Free Zone Person (QFZP):

   • Derive qualifying income.
   • Maintain economic substance in the free zone.
   • Exclude non-qualifying income exceeding 5% of total revenue or AED 5 million.

2. Qualifying Income:

   • Income from other free zone entities.
   • Domestic and foreign-sourced income from qualifying activities, such as manufacturing, logistics, and fund management.

Corporate Tax for Freelancers

Freelancers earning over AED 1 million annually fall under the corporate tax regime. To operate legally, they must:

1. Obtain a freelance license.
2. Register for corporate tax.
3. Maintain proper financial records.

Corporate Tax for Groups

Businesses can form a Tax Group to consolidate taxable income, simplifying compliance and reducing tax liabilities.

Requirements:

• 95% ownership of subsidiaries.
• Alignment in fiscal years and accounting practices.
• Exclude exempt entities or QFZPs from the group.

Corporate Tax Registration Process

1. Access the FTA Portal:

   • Create an account on the Federal Tax Authority (FTA) website.

2. Submit Required Documents:

   • Emirates ID, trade license, passport, financial records, and corporate structure details.

3. Receive TRN:

   • Once approved, you will receive a Tax Registration Number (TRN).

4. Timeline:

   • Approval typically takes 20 days, with extensions if additional documents are required.

Filing and Compliance

1. Record-Keeping:

   • Maintain accounting records compliant with IFRS.
   • Retain records for at least 5 years.

2. Filing Tax Returns:

   • Submit returns annually within 9 months of the financial year-end.

3. Payment Deadlines:

   • Late payments incur penalties, up to 300% of unpaid tax.

Tax Deductions

Allowable deductions include:

• Employee salaries and benefits.
• Rent and utility expenses.
• Depreciation of long-term assets.
• Interest expenses (capped at 30% of EBITDA).
• Charitable contributions to approved organizations.

How Corporate Tax Benefits UAE Businesses

• Enhanced Transparency: Aligns with global tax standards, attracting foreign investors.
• Economic Diversification: Reduces dependence on oil revenues.
• Global Competitiveness: The UAE’s 9% tax rate is among the lowest globally.

Global Corporate Tax Comparison

How Easy Start Dubai Can Help

1. Corporate Tax Advisory: Expert guidance on exemptions, deductions, and compliance.
2. Tax Registration: Assistance in registering with the FTA and securing your TRN.
3. Tax Filing: Preparation and submission of accurate annual returns.
4. Compliance Support: Ongoing support to maintain financial records and meet deadlines.

Take the first step towards corporate tax compliance today. Contact Easy Start Dubai for a consultation and ensure your business stays ahead in the UAE’s evolving tax landscape.