The UAE’s Federal Tax Authority (FTA) has introduced a new corporate tax law, effective from June 1, 2023. This decision aims to ensure a sustainable and diversified economy in the UAE. According to the law, businesses will be subject to a 9% corporate tax starting from their first fiscal year on or after June 1, 2023.
Importance of Corporate Tax in UAE
Corporate tax in the UAE is a tax levied on a company’s profits. With the UAE being a major business and commercial hub, understanding the corporate tax landscape is crucial for businesses operating in the region. Here are the key reasons why corporate taxation is important:
Revenue Generation for Public Services:
Corporate tax is a significant source of revenue for the government. This revenue supports the provision of essential public services such as education, healthcare, and infrastructure.
Creating a Level Playing Field:
By ensuring all businesses pay their fair share of taxes, corporate tax helps to level the playing field. This prevents large businesses from having an unfair advantage over smaller businesses, promoting fair competition.
Key Factors Affecting Corporate Tax
Several factors determine the amount of corporate tax a business in the UAE will pay, including:
- Size of the Business: Larger businesses typically generate more profit and thus may pay more in taxes.
- Profits: The corporate tax is directly linked to the profits a business earns.
- Type of Business: Different types of businesses may have different tax obligations based on their structure and operations.
Understanding these factors can help businesses navigate the new corporate tax landscape in the UAE effectively.
Who Should Pay Corporate Tax in UAE?
Businesses with a taxable profit (net) exceeding 375,000 AED are required to pay corporate tax in the UAE. This includes UAE companies that are incorporated, managed, and controlled in the UAE, as well as certain entities in free zones. To support small firms and start-ups, the corporate tax rate is 0% for businesses with a net profit below 375,000 AED
How Can Businesses File for Corporate Taxes in UAE?
Eligible businesses must first register under the UAE’s Corporate Tax (CT) regime. Upon registration, they will receive a corporate tax registration number from the authority. Businesses are required to file their corporate tax returns within 9 months after the end of their fiscal year.
Exemptions from Corporate Tax in UAE
While businesses with profits over 375,000 AED must pay corporate tax, certain types of income and businesses are exempt. Exemptions include:
– Individual Income: Income from employment, real estate, share investments, and other personal income unrelated to a trade or enterprise in the UAE.
– Foreign Investors: Foreign investors not conducting business in the UAE.
– Free Zone Businesses: Companies in free zones that meet all regulatory conditions continue to enjoy current corporate tax benefits.
– Capital Gains and Dividends: Capital gains and dividends from qualifying shareholdings are tax-free.
– Intragroup Transactions and Restructurings: Eligible intragroup transactions and restructurings.
Free Zones and Tax Benefits
The Corporate Tax Law introduces the concept of a “Qualifying Free Zone Person” (QFZP). A QFZP is defined as a free zone firm or branch that:
– Maintains sufficient substance in the UAE.
– Obtains eligible income (as defined by Ministerial Decision).
– Meets transfer pricing requirements.
– Complies with additional requirements imposed by ministerial decision.
A QFZP is subject to corporate tax but at a 0% rate. A QFZP may choose to opt-out of this regime and pay the regular corporate tax rate.
How Corporate Tax is Computed in UAE
Corporate tax in the UAE is set at 9% of the net profit recorded in a company’s financial accounts, applicable only if the taxable net profit exceeds 375,000 AED. For instance, if a company’s net profit is 575,000 AED,
the corporate tax would be calculated as follows:
\[ \text{Corporate Tax} = (575,000 – 375,000) \times 0.09 = 18,000 \text{ AED} \]
Impact of Corporate Tax in UAE
Understanding the corporate tax system is crucial for businesses operating in the UAE to ensure compliance and optimize their tax obligations effectively. For further details, you can read more about the impact of corporate tax in UAE.
How Unicorn Global Solutions Can Assist You
Unicorn Global Solutions has been addressing the accounting needs of clients in the UAE. In addition to our expertise in accounting and auditing, our team includes highly skilled tax professionals with extensive knowledge of current and upcoming UAE tax laws.
Our dedicated team is already providing corporate tax consultancy services, helping clients prepare for the new tax regime. Contact us today to learn more about our comprehensive range of services. Text us on WhatsApp or call us today
