Corporate Tax in UAE

All You Need To Know About Corporate Tax in UAE

It’s a new financial year and you’re confused about corporate tax in UAE. You’re wondering whether you need to pay taxes or if there are tax benefits available to you.

Well, don’t worry. We’ve got your back! In this blog, we’ll cover everything you need to know about corporate tax in Dubai, UAE which includes what corporate tax is, who is subject to UAE corporate tax, who are residents and non-residents of the emirate, and those exempt from paying corporate tax.

We’ll also discuss income sources that are non-taxable and tax benefits under corporate tax in UAE.

What is Corporate Tax?

UAE Corporate tax is a form of direct tax levied on the net income of entities from their business operations. In a nutshell, corporate tax is a tax levied on the profits of a business, which is determined by income tax law and the filing of corporate tax returns. 

For entities with legal personalities such as LLCs, PSCs, PJSCs, LLPs, and others, the corporate tax rate is 9% of taxable income. Non-residents and residents of the UAE may also be subjected to corporate tax policies. 

In recent years, the positive Impact of Corporate Tax in Dubai has increased several times, after United Arab Emirates (UAE) government introduced new taxation policies to boost its economy.

Who is Subject to Corporate Tax in UAE?

- All UAE-incorporated entities and individuals conducting business or business activities in the UAE are subject to corporate tax.

- Foreign legal entities with a permanent establishment in the UAE or that are managed and controlled in the UAE are subject to corporate tax on profits of income.

- The tax rate applicable to a corporate entity is currently 9%. Moreover, capital gains from the transfer of capital assets will be taxable as per the law of the country of origin.

- Dividends, interest, royalties, capital gains, service fees, and other income obtained by foreign persons will not cause corporate tax liabilities in the UAE if there is no permanent presence in the UAE.

- Also, the financial year for corporate entities is from April 1 to March 31 of the following year.

- Lastly, a person or a Tax group who has income arising out of a business activity in the emirate is subject to corporate tax.

UAE Corporate Tax Rate

Who are Residents and Non-residents?

UAE CT Implementation is levied on corporate entities incorporated under UAE law, including individuals or entities that have been incorporated or established under UAE corporate law free zone entities.

- Individuals who are residents of corporate tax in Dubai are individuals or entities that have been incorporated or established under UAE corporate law, including free zone entities.

- Non-residents for corporate tax in Dubai are non-UAE persons who maintain a permanent establishment in the UAE.

- Corporate tax applies to UAE-incorporated entities, individuals (foreign or resident) who conduct a business or business activity in the UAE, and foreign legal entities with a permanent establishment in the UAE or that are managed and controlled in the UAE.

CT Calculation in UAE is a fixed 9% rate of income generated from taxable business activities in the emirate of Dubai. However, income tax exemption can be availed by companies with income less than AED 250 million per year on profits earned within the emirate of Dubai.

Income tax exemption for income above AED 250 million per year is also available under certain conditions as per the income tax rate of 15%.

With income tax exemption available for companies with income less than AED250 million a year and income tax exemption for income above AED250 million per year under certain conditions, businesses operating in Dubai can reduce their corporate tax burden significantly without compromising on financial returns.

Corporate Tax Exemptions in Dubai, UAE

- Nationals not resident in the UAE may be exempt from taxation on income they derive from income earned outside of the country.

- Insurance products imported into or exported from free zones may also be exempt from taxes when they meet certain criteria or conditions listed under applicable laws and regulations.

- Share transfers between related parties in free zones may also be exempt under applicable rules determined as set by local authorities.

- Businesses are subject to anti-avoidance regulations which closely monitor any attempts by taxpayers to minimize the tax burden.

Which Income Sources Are Non-taxable under UAE Corporate Tax?

- The profits of a corporate entity taxable in Dubai are taxable in UAE only if the profits are derived from a business activity carried out in UAE or a non-UAE country and the corporate tax rate of that country is applied.

- Income tax rate of 5 percent is applicable on the income of a corporate entity taxable in Dubai.

- In addition to income tax, a profit tax rate of 10 percent on profits earned by a corporate entity taxable in Dubai is also applicable.

- Emoluments received by any person (individual or corporate) are taxable. For emoluments received by a person as a director, emoluments received as a partner, emoluments received as an employee, etc., will all be taxable at the rate of 5 percent.

What Tax Benefits Are Available Under Corporate Tax in UAE?

Companies operating in the UAE may be subjected to a corporate tax rate of 9% beginning in 2023. This is applicable to the taxable income of companies registered in the country. The rate is fixed for a financial year and cannot be reduced or increased.

Impact of Corporate Tax on UAE Free Zones in regards to the businesses registered in free zones may be exempt from taxation, provided they comply with all relevant regulations.

The corporate tax rate varies depending on the nature of the business and the type of income earned by a company. This rate can also vary based on income tax rates prevailing in a particular country.

Businesses must pay taxes based on their taxable income and not their profit or loss figures. They must also file tax returns annually and make payments as per prescribed timelines.

Frequently Asked Questions (FAQs)

1. What are the corporate tax rates in Dubai, UAE?

The UAE corporate tax rate is a standard rate of 9% levied on businesses operating in the country. This rate applies to the taxable income of companies that are based in the country, and also to businesses that have a permanent establishment within the UAE.

From the financial year beginning on 1st June 2023, many more companies operating in the UAE will need to begin paying a new corporate tax rate of 9%.

Overall, corporate tax rates in Dubai, UAE vary depending on the business activities of a company and its corporate income tax rate.

It is important to do your research and familiarize yourself with the different tax regulations before filing any corporate tax returns.

2. What is the process for filing a corporate tax return in Dubai, UAE?

Filing a corporate tax return in Dubai, UAE is a process that businesses will be required to undertake as of January 1, 2023. This process is administered and enforced by the Federal Tax Authority (FTA).

First and foremost, businesses must obtain a Corporate Tax Registration Number from the FTA and the best CT Advisory Services before preparing to file a return.

The FTA is expected to issue guidelines for registration and returns before June 2023.

Once businesses have a Corporate Tax Registration Number, they will need to submit a corporate tax return along with supporting documents for each taxation year.

The corporate tax return must include financial information on income, taxation liabilities, tax deductions or tax credits, assets, and other related data.

It is important to note that companies must submit their corporate tax returns to the FTA within 61 days of the end of each taxation year.

Businesses that fail to meet these requirements may incur financial penalties or other regulatory measures by the authority.

3. Is there a federal corporate tax in Dubai, UAE?

No, there is no federal corporate tax in the UAE, including With-holding Tax. However, businesses may be required to pay other taxes, such as value-added tax (VAT) and excise tax.

4. Are there any free zones in Dubai where businesses are exempt from taxes?

Yes, there are several free zones in Dubai where businesses can operate tax-free. These include Dubai Multi Commodities Centre (DMCC), Dubai Airport Free Zone, Dubai Silicon Oasis, and Dubai World Trade Centre, among others.

5. What is the rate of VAT in Dubai, UAE?

The standard rate of VAT in Dubai, UAE is 5%. Some goods and services may be exempt or subject to a reduced rate, such as healthcare and education.

6. Do businesses in Dubai need to file tax returns?

Yes, businesses in Dubai that are registered for VAT must file tax returns with the Federal Tax Authority (Fregularlyasis. The frequency of filing depends on the business's annual turnover.

7. What are the penalties for non-compliance with tax regulations in Dubai, UAE?

Non-compliance with tax regulations in Dubai, UAE can result in fines, penalties, and even legal action. The FTA has the authority to impose penalties for various violations, including late payment of taxes, failure to register for VAT, and incorrect tax returns. The amount of the penalty depends on the severity of the violation.

Let’s Sum Up

All corporate entities have to have to follow the Corporate Tax Registration in the UAE and pay tax on their income in the form of profit tax, business tax, or other types of tax. To ensure a business runs smoothly and profitably, it is vital to keep a tab on taxation. This blog has given you a better understanding of corporate tax in UAE.

Book a free Corporate tax consultant with BRS to learn more about corporate tax in UAE.