UAE Corporate Tax: What you need to know immediately

The UAE has recently introduced a new law on the taxation of corporations and businesses, which came into effect on June 1, 2023.This corporate tax will be applicable for financial years starting on or after 1 June 2023 and ends on May 31, 2024.  By the end of 2024, the first tax return filing will likely continue to be necessary.

The law requires companies to register for corporate tax with the Federal Tax Authority (FTA) within a specified timeline. It does not matter how much is the turnover and how much is the profit.

Under the new corporate tax law, commercial profits produced by UAE companies will be subject to corporate income tax within a tax accounting period.

This direct tax is mainly subjected to business entities. And for people, whose income earned in their capacity which does not require a commercial licence is not subject to taxes.

Significance of Corporate Tax in UAE

Corporate tax is a form of direct tax levied on the net income or profit from their businesses. The primary objective and paramount significance of the corporate tax in the UAE is that the nation confirms its commitment to adhering to international norms for tax transparency and combating harmful tax practices by enacting this direct tax. UAE recently introduced a new corporate tax system and the rate is 9% which is the lowest among the GCC countries. Corporate tax is considered lower by the authorities for encouraging investment and enhancing the global market share of businesses. Corporate tax is considered lower by the authorities for encouraging investment and enhance global market share of businesses.

To strengthen the UAE’s economic position and maintain transparency in the tax system, the UAE has introduced the corporate tax. So, every business should follow compliance for corporate tax registration and avoid a penalty for late registration which is AED 10,000.

In UAE, Corporate tax is applicable as follows:

• The 0% rate will apply to all taxable profits under AED 375,000 per year.
• A 9% rate will be applied to all taxable profits over AED 375,000 per year.
• According to OECD Base Erosion and Profit-Sharing regulations, ALL MNEs that are covered by Pillar 2 of the BEPS 2.0 framework—that is, those with consolidated worldwide revenues exceeding AED 3.15 billion—will be subject to various rates.

Things to Remember Before Calculating Corporate Tax

• Corporate tax is levied on the annual taxable income of a business, which is the accounting net profit or loss as stated in the financial statement.
• You need to keep accurate and complete records of your business transaction for avoiding any penalties.
• The corporate tax rate is 0% and 9% considering the taxable income limit.
• Some businesses may be exempt from corporate tax or pay lower tax depending on activities and location.
• You need to report any changes in your business activities, ownership or tax status within the time limit.

UAE Corporate Tax Exemptions

The following types of income are often free from Corporate tax in UAE:

• Dividend income received by a UAE-based business from its legally-qualified shareholdings
• Capital gains
• Gains from reorganising a group
• Gains from Transactions Within a Group

Withholding taxes from the UAE won’t apply to both local and international payments.

Corporate tax on Free Trade Zone 

As long as the enterprises do not transact with the mainland, the UAE plans to uphold its promise to businesses registered in Free Trade Zones that they will pay zero percent tax (or remain exempt, if applicable) until the conclusion of the holiday season. Every free zone is required to submit a yearly CT return.

Companies operating under the dual license scheme and those with a presence in both the Free Trade Zones and the United Arab Emirates’ mainland should think about how this will affect their business strategy.

The Penalty for Late Registration

The Ministry of Finance has announced that companies that fails to register for corporate tax within the deadline will face an administrative penalty of AED 10,000 (around $2,700), which are imposed by the FTA.

The penalty aims to encourage taxpayers to comply with the tax regulations and register for corporate tax promptly. The penalty will be effective from March 1, 2024, according to Cabinet Decision No. 10 of 2024.

How to Avoid the Penalty

To avoid the penalty, companies should register for corporate tax as soon as possible. Companies should also ensure that they have all the necessary documents and information ready before applying for registration, such as:

• The company’s trade license and certificate of incorporation.
• The company’s financial statements and tax returns for the previous year.
• The company’s bank account details and contact information.
• The company’s estimated taxable income and tax liability for the current year.

Best Corporate Tax Services in UAE

Algorithm Accounting and Consultancy, the leading accounting firm in Dubai provides corporate tax services that are especially tailored for all UAE-based firms. We will assist you to solve every tax related concern in UAE. It is set up to ensure business owners pay the correct amount of taxes by covering every facet of corporate tax.

Our in-depth knowledge of tax laws and regulations may apply to every industry which can help to achieve the best tax settlements. If you are looking for the best corporate tax services in the UAE, Algorithm Accounting will be the ideal choice for you. We offer the best corporate tax services with expert corporate tax consultants in the UAE.

Conclusion

The UAE’s corporate tax law is a significant change in the country’s tax system, which aims to enhance its economic competitiveness and diversification. Companies that operate in the UAE should be aware of their tax obligations and register for corporate tax as soon as possible.

We have very professional taxation team to track all the FTA’s announcements and updates on the corporate tax law and its implementation. Feel free to contact for corporate tax registration related procedure and assistance.

Frequently Asked Questions (FAQ)

1. Do businesses in the UAE need to file tax returns?

   Yes, businesses in the UAE are required to file tax returns even though there may not be a corporate income tax. Compliance with other tax obligations, such as VAT (Value Added Tax) and withholding tax, is mandatory.

2. Are there any taxes on dividends or capital gains in the UAE?

   As of now, there are no taxes on dividends or capital gains in the UAE at the federal level. However, it’s essential to check for any regulations or tax requirements at the Emirate level.

3. What are the tax incentives available for businesses in the UAE?

   The UAE offers various incentives to attract businesses, including free zones with 100% foreign ownership, tax exemptions for certain industries, and preferential treatment for specific activities like technology and innovation.

4. Do foreign-owned businesses have any special tax considerations in the UAE?

   Foreign-owned businesses operating in free zones are generally exempt from corporate income tax for a specified period, depending on the free zone authority and the type of business activity

5. How does VAT affect businesses in the UAE?

   VAT (Value Added Tax) was introduced in the UAE in 2018 at a standard rate of 5%. Businesses are required to register for VAT if their annual taxable supplies and imports exceed the mandatory registration threshold

6. . Are there any withholding taxes in the UAE?

   The UAE does not currently impose withholding taxes on dividends, interest, or royalties. However, businesses should stay updated on any changes in tax regulations that may affect their operations

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

   Penalties for non-compliance with tax regulations in the UAE can include fines, penalties, and potential legal action. It’s crucial for businesses to ensure they meet all tax obligations to avoid these consequences