Corporate tax In UAE
The United Arab Emirates, known as a tax-friendly business hub, introduced federal corporate tax starting from or after 1st June 2023, by the Ministry of Finance. This new form of direct tax will be levied on the taxable profits reflected in the audited financial statements.
The UAE Ministry of Finance (MoF) has implemented Federal Corporate Tax (CT) to comply with international taxation standards and promote corporate transparency. Effective from the financial years beginning on or after 1st June 2023, a competitive 9% corporate tax shall be applicable in the UAE on profits exceeding AED 375,000 while free zone entities will benefit from a 0% rate on qualifying income.
As one of the leading registered tax agents in the United Arab Emirates, and corporate tax advisory firm in the United Arab Emirates, we deliver personalized tax solutions to maximize your tax strategy.
Al Mushthary will be by your side to help you understand and effectively implement the new tax regulations.
Corporate tax rates in UAE
The corporate tax rates in the UAE are as follows:-
- 0% Tax: Applied to taxable income up to AED 375,000.
- 9% Tax: Levied on taxable income exceeding AED 375,000.
- 15% Tax: Applicable to multinational corporations that fall under the OECD Base Erosion and Profit-Shifting (BEPS) 2.0 framework, specifically Pillar 2, for groups with combined global revenues exceeding AED 3.15 billion.
UAE Corporate Tax Effective Dates
The UAE's Corporate Tax (CT) system will be implemented with the following timelines:
For Companies with a Fiscal Year Starting on June 1, 2023:
- CT applies from June 1, 2023.
- The first tax return filing is expected to be due by late 2024.
For Companies with a Calendar Year Starting on January 1, 2024:
- CT applies from January 1, 2024.
- The first tax return filing will likely be due by mid-2025.
Corporate Tax Benefits for Free Zone Entities in the UAE
In the United Arab Emirates, Qualifying Free Zone Persons or Free Zone Companies are eligible for a special corporate tax rate of 0% on their qualifying income. It should be noted that this preferential rate will only apply to income derived from business activities that are specifically covered by the United Arab Emirates (UAE) Corporate Tax (CT) Regime.
- The 0% rate applies only to the eligible income as defined in the provisions governing Free Zone entities.
- If any Free Zone companies undertake services that fall outside the qualifying services set out or fail to comply with the provisions of the CT, the 9% corporate tax rate shall apply.
For Free Zone management companies, it is important to evaluate their sources of income and to make sure they comply to benefit from the tax advantages and avoid liabilities.
How is Corporate Tax Calculated in the UAE?
Calculating corporate tax in the UAE is straightforward, especially given the tiered tax rate structure.
- Profits up to AED 375,000 are taxed at 0%, meaning no corporate tax is due on that portion.
- Profits above AED 375,000 are taxed at 9%.
Example Calculation:
Let's assume a business has a total profit of AED 400,000.
- Calculate taxable portion:
Total profit (AED 400,000) - Exempt threshold (AED 375,000) = AED 25,000 (subject to tax) - Apply the tax rate:
AED 25,000 x 9% = AED 2,250
So, the corporate tax liability for that financial year would be AED 2,250.
Note: Any profits below or up to AED 375,000 will not incur corporate tax in the UAE.
Corporate Tax Impact on Foreign Individuals & Businesses
The UAE provides tax advantages to all foreign individuals and entities that receive investment income in the form of dividends, capital gains, interest, and royalties and does not impose corporate tax on such businesses. Foreign companies that actively trade or operate in the UAE, on the other hand, are subject to corporate tax on profits above certain thresholds.
Key Impacts of Corporate Tax Implementation in the UAE
The implementation of corporate tax in the UAE affects the following:
- Businesses and Entrepreneurs: Commercial license holders who practice business within the boundaries of the UAE.
- Free Zone Businesses: The regulatory compliance of companies and their activities in the United Arab Emirates mainland has an impact on the performance of free zone businesses.
- Banking Sector: In the United Arab Emirates, banking operations are subject to particular tax regulations.
- Foreign Companies & Investors: Foreign entities conducting regular trade or business in the UAE are subject to corporate tax.
- Taxation Registration: Residents of Free Zone and other taxed individuals are required to obtain a corporate tax registration number according to the Federal Tax Authority (FTA).
- Exempt Entities: Even though some entities are extemp from tax, they must be required to register for corporate tax.
Corporate tax filing
After completing the UAE company registration process, businesses must prepare corporate tax filings that are due within nine months of the end of their relevant tax periods. Most businesses with fiscal years ending December 31, 2024, will have their first applicable taxable period run from January 1, 2024, to December 31, 2024, with the first corporate tax return filing due on September 30, 2025.
According to UAE tax policy, companies must keep a proper book of accounts and documentation for seven consecutive years after the end of a tax period, as well as for any future audits.
Maintain Compliance
To aid in transitioning into the new corporate tax regime, Al Mushthary assists organizations in all spheres in obtaining the UAE tax registration number as well as calculating tax, prepares audited financial statements to support taxable income, and submits annual corporate tax returns to the Federal Tax Authority on behalf of your company.
Our team carries our comprehensive tax assessments specifically based on the needs of your company, thus ensuring accurate and timely preparation and accurate submission of corporate tax returns.
Corporate Tax Filing Deadlines and Penalties in UAE
- A corporate body must submit a return on Corporate Tax within nine months after the end of the relevant tax period. This period also applies to the remittance of the Corporate Tax determined for that period.
- Companies must adhere to fines and penalties if they fail to comply with the Corporate Tax compliance standards set by the Federal Tax Authority and the Ministry of Finance.
Coverage of UAE corporate tax :
- Corporate tax is imposed on all businesses and individuals carrying out activities under a commercial license in the UAE.
- Businesses in the free zone: The corporate tax regime of the UAE will allow existing tax incentives for free zone businesses that meet all the legal necessities and do not have physical offices on the mainland.
- Corporate tax will apply only to foreign entities which have a regular business or trade in the UAE.
- Companies from banking activities, management of real property, construction development, agency, and brokerage are subject to corporate tax.
Exemption of corporate tax in UAE
- Businesses involved in extracting natural resources are subject to taxation at the Emirate level.
- Corporate taxes are exempt for entities such as the UAE federal government, UAE emirate government, and Emirate of government which also includes their department, and private institution.
- Entities of the UAE fully owned by the Government, involved in sovereign or mandated activities as provided in a Cabinet Decision.
- Exempt on social and retirement pension funds, both publicly and privately regulated firms.
- Earnings earned from dividends and capital gains are exempt from corporate tax.
- Salaries and earnings from public or private sector employment are exempt from corporate tax.
- Income from bank deposits or savings schemes earned by individuals is exempt from corporate tax.
- Foreign investors earn dividends, capital gains, interest, royalties, and returns from investments that are exempt from corporate tax.
- Real estate investment income earned by individuals would also be exempt from tax.
- The income from dividends, capital gains, and any other profit amount generated through shares or securities owned by individuals in their private capacity is exempt.
Corporate Tax In UAE
At Al Mushthary, we provide full-fledged Corporate Tax services designed for corporate clients within the UAE. In this regard, we have a dedicated team of experienced corporate tax consultants who work hard to ensure that you understand the corporate tax compliance requirements, and more importantly, help you in formulating and achieving the best strategies.
Our services comprise:
- Corporate Tax Assessment
- Corporate Tax Registration
- Corporate Tax Filing & Return
- Corporate Tax Compliance
- Corporate Tax Consultancy
- Corporate tax health check
UAE Corporate tax service provides: Al Mushthary
- Corporate tax training sessions: We keep our clients updated with the latest UAE corporate regulations by providing corporate tax training sessions.
- Advisory and Impact Assessment:
- Pre-Implementation Analysis: Assess whether Corporate Tax would have any potential effect on projected areas before declaring their applicability, available exemptions, options for tax grouping, taxation in Free Zones, considerations on Permanent Establishment (PE), and the issue of expense deductibility.
- Implementation Post-Analysis: Offer extensive assessments and personalized advice when Corporate Tax regulations are already in effect.
- Entity Structuring: Evaluate current group structures and suggest ways of tax efficiency aligned with legal provisions.
- Advisory service on international tax:
- Permanent establishment advisory: Advisory on PE implications for non-residents and assessment of corporate tax applicability.
- OECD BEPS Pillar 2 impact: Analyze implications of OECD BEPS Pillar 2 regulations and recommend strategies to optimize tax structures.
- Double Taxation Benefits: Advice on the tax relief and benefits derivable from applicable Double Tax Avoidance Agreements (DTAA).
- Corporate tax registration and deregistration:
- Hassle-free registration-deregistration scenario for the Corporate Tax.
- Assist in applying for corporate tax grouping and secure entitled exemptions.
- Assist in the tax calculation, provisioning, timely payment, and filing of the annual corporate tax return.
- Representation services:
- Advice on the procedures for obtaining clarifications from the UAE Federal Tax Authority (FTA).
- Assist in the preparation and submission of responses to the FTA's notice.
- Represent clients before the FTA to efficiently resolve issues.
- Corporate tax health check:
- Evaluate your business and adhere to the UAE corporate regulations and compliance.
- Assess potential areas of risk which include tax calculations, documentation, and corporate tax filings,
- Provide recommendations to improve tax position and mitigate tax risks
- Reviewing systems and processes for smooth alignment with Corporate Tax Provisions.
Importance of Corporate tax in UAE
In accordance with the newly established laws on corporate tax in the UAE, businesses are obliged to adhere to the tax regulations set up by the government. Large multinational corporations that meet certain criteria specified under the OECD's 'Pillar Two' regime would qualify to be taxed differently.
Key advantages are:-
- Ensure compliance with UAE tax regulations
- Ensure correct tax calculation and timely filings
- Strategic tax planning to minimize liabilities
- Expert assistance on tax-related matters
Al Mushthary: A Top Tax Agent In the UAE
Al Mushthary stands as a renowned provider of corporate tax consultancy, accounting, and advisory services in the UAE. Our team of experts specializes in company setup, auditing, corporate tax, VAT, ICV certification, accounting and bookkeeping, stock counts, and company valuations among many others: we have all business consulting services under one roof.
Al Mushthary offers customized solutions to suit your needs.
Call us now to schedule a free appointment with our experts!
