Corporate Tax in the UAE: Regulations, Exemptions, Rates, and Updates

Introduction of Corporate Tax in UAE

The United Arab Emirates (UAE) has been known as a tax-free haven for a while now. Before the introduction of corporate tax, the UAE did not have any federal tax. However, the emirates had the authority to impose taxes on businesses operating within their respective borders. With the introduction of Federal Law No. 7 of 2017 on Tax Procedures and Cabinet Decision No. 59 of 2017 there has been an implementation of Excise Tax, Value Added Tax (VAT), and Income Tax Treaties (the Tax Procedures Law), corporate tax on the profits of all companies, except for those engaged in oil and gas.

The Federal Tax Authority (FTA) is responsible for implementing and regulating the tax system in the UAE. The Decree-Law has been issued by the President of the United Arab Emirates, His Highness Sheikh Mohamed bin Zayed Al Nahyan.

All firms must comply with this rule from their first fiscal year, beginning on or after June 1, 2023. However, since the complete guidelines have not been formulated yet, it is important to take care of the changes taking place in the law and plan accordingly. This law will be demonstrating the nation’s legal seriousness and no tolerance towards destructive tax practices. The step has been taken to help the nation progress, maintain its reputation abroad, and reach new heights.

The corporate tax rate in the UAE has been set at the lowest rate worldwide. This has been done keeping in mind the fact that a higher rate will add pressure to the businesses. Compliance has also been estimated to be higher when the tax rate is set at a relatively low value. It is therefore set to increase the revenue of the nation.

Why did the UAE implement a corporation tax?

The emirates have introduced the corporate tax while keeping a number of factors in mind. These are-

• Establish the country as a business and investment hub worldwide
• Meet the strategic goals set by the nation
• Implementing the no tolerance policy for money laundering and destructive tax practices
• Diversify the revenue of the nation

It is somewhat notable that the UAE still appeals to businessmen to set up new businesses despite the establishment of corporate law. The whole idea behind the establishment of this tax system was to provide transparency and look after the accountability of businesses in order to lure more foreign investors. Now let’s have a look at the relief and benefits of the corporate tax in the UAE.

Which Businesses are Liable for Corporate Tax in UAE?

All companies in the UAE are liable for corporate tax, except for those engaged in oil and gas production and exploration activities. The tax applies to companies based in the UAE, as well as foreign companies operating in the country. Companies with an annual turnover of over AED 375,000 are required to register for VAT, which is an indirect tax, but not necessarily corporate tax.

What is the Corporate Tax Rate in UAE?

The corporate tax rate in the UAE is 9%, which means that companies do not have to pay any corporate tax on their profits. This rate is among the lowest in the world, making the UAE an attractive destination for businesses looking to set up operations.

Example
Business Net Income	AED 500,000
Exemption up to AED 375,000	AED 125,000
Corporate Income Tax  @ 9%	AED 11,250/-

Who is exempted from the tax?

The current rate of corporate tax in the UAE is 9%. To ease the tax burden faced by businesses, there are many exemptions provided. These are-

• Government entities and government control entities
• Any business dealing with the exploration and production of oil and gas
• Qualifying public benefit entities
• Pensions, investment funds and social security funds
• Dividends and capital gains
• Qualifying intra-group transactions
• Individual earnings
• Interest from banks and other incomes
• Investment returns
• Income received through ownership of shares
• The tax credit can be claimed by multinational businesses that have establishments outside the UAE due to their foreign presence.
• Any small and medium-sized enterprises (SMEs) are entitled to claim a reduced tax rate of 0%.

Benefits and Scope of Corporate Tax

There are various benefits associated with the corporate taxes in the UAE. The benefits are mentioned below-

1. Reduced Tax Rates in Free Zones

There are many free zones in the UAE from where several tax incentives can be leveraged by businesses. These free zones have their own tax regulations and offer reduced tax rates or complete exemptions from certain taxes, including corporate taxes.

2. Double Taxation Treaties

The double taxation treaty is a taxation agreement signed by the UAE with other nations to prevent businesses from being taxed twice. Countries like the UK, France, Germany, and India have a double taxation treaty signed with the UAE. This helps to prevent double taxation on the same revenue generated in different countries.

3. Transparency

After the introduction of the corporate law in the UAE, it is essential to keep record of the financial transactions. This is done to ensure accountability and transparency.

4. Attraction of Foreign Investment

Foreign Investments is a huge part of the country’s revenue. The tax regime is bound to make the nation a desirable location for setting up a business due to its transparency and straightforward approach.

5. Corporate tax on MNCs

There will be a tax rate set for the MNCs that qualify according to the specific criteria. This tax rate is said to be higher than 9% but has not been set yet. The corporate tax is said to make the UAE a transparent and dynamic location for businesses setup worldwide.

What steps are to be followed for filing, registering, and paying the corporate taxes in the UAE?

The actions that must be taken in order to pay UAE corporation tax are as follows:

• Registration- It is important for all businesses to own a company tax registration number, regardless of the fact that the company is subject to taxation.
• Filing – The taxable person shall file a corporate tax return. Within nine months after the end of the tax period, this must be completed.
• Individual filing –VAT and Corporate Tax (CT) must be paid separately if you are registered for VAT; nevertheless, even if your company is not registered for VAT, you may still be required to pay Corporate Tax. Both taxes, which are entirely distinct from one another, are still in effect in the UAE.
• Implementation – The implementation of Corporate Tax in UAE will not result in the elimination of VAT or excise tax in the nation. All of the UAE’s Emirates will also be subject to tax. Understanding the regulations and every other element of your business will be helpful when applying for the Corporate Tax.
• Research – The Federal Tax Authority has asked everyone to study information on company tax law and other supporting material available on official government websites. You may use the same to examine the situation and decide if your company must pay corporation tax or not. To keep up with any current changes or additions to the legislation, everyone should frequently visit the websites or get in touch with us.

>Key Pointers on the New Corporate Tax in UAE

• The corporate tax in UAE has been set at 9% for taxable income equivalent to or above AED 375,000/-.
• The tax will be implemented in the fiscal year starting from or after June 1st, 2023
• Freezone businesses are eligible for the corporate tax if they meet the criteria set
• A number of exemptions have been provided to ensure that the tax is not viewed as a burden
• Tax groups can be established if certain conditions are met
• The introduction of corporate tax aims to make the nation’s economy a stable and stronger one worldwide.