Corporate Tax in the UAE
From June 1, 2023, a new corporate tax came into effect in the United Arab Emirates, affecting almost all business persons in the country. The Emirates are gradually moving away from a tax-free environment and are striving to maintain tax transparency in business, comply with international financial standards, and combat illegal activities and tax evasion. This is important as the country positions itself as a global financial and trading center and is actively implementing advanced tax and accounting practices. In 2024, the UAE achieved significant results in this regard, leading to its removal from the FATF "gray" list. This indicates a positive trend, suggesting that authorities will likely continue to develop and enhance their tax system.
All legal and natural persons conducting business in the UAE are required to register for corporate tax purposes with the tax authority, obtain a taxpayer registration number, and annually file a tax return. This must be done in 2024. Failure to register on time will result in a penalty of 10,000 dirhams. Learn all about the registration procedure for corporate tax.
Corporate tax in the UAE is one of the lowest in the world, at 9%. There are also opportunities to reduce it to 0% under certain conditions. The Ministry of Finance has published a list of 352 questions covering the entire spectrum of topics related to the new tax regime. In this article, we will highlight the most relevant questions.
Key aspects of UAE Federal Corporate Tax
Corporate tax is applied to taxable income, which is net profit or loss adjusted for certain items as defined by the corporate tax law in UAE.
The UAE corporate tax law is federal and therefore applies in all Emirates.
The standard corporate tax rate is 9%. However, special conditions apply to companies in free zones, as well as to small businesses and individuals.
Taxable persons can be residents as well as non-residents of the United Arab Emirates.
The tax period is the calendar year according to the Gregorian calendar (from January 1 to December 31), unless a different period is applied for financial reporting purposes.
Who is subject to the corporate tax in the UAE?
- Juridical persons (in mainland and free zones)
- Natural persons conducting business activities under a license
- Foreign persons with a permanent establishment in the UAE receiving income from the UAE sources
Corporate tax rates in the UAE
Mainland companies:
- Taxable profit up to 375,000 dirhams is taxed at a rate of 0%.
- Taxable profit exceeding 375,000 dirhams is taxed at a rate of 9%.
Free zone companies:
— For companies earning income from qualifying activities (Qualifying Free Zone Person), a corporate tax rate of 0% applies. To qualify for the zero rate, the following criteria for QFZP must be met:
- the company's activities must be among the government-defined qualifying activities;
- companies must operate within the free zone territory;
- own a sufficient amount of assets;
- have an adequate number of qualified employees;
- demonstrate a sufficient level of operating expenses.
— Profit derived from other sources is taxed at the standard corporate tax rate of 9%.
Small Business Relief:
Persons with revenue for the tax period up to 3 million dirhams may opt for the Small Business Relief tax regime and pay no corporate tax. If the threshold amount is exceeded, the right to apply SBR is lost. The program is valid until December 31, 2026.
Natural persons conducting business activities
This category includes freelancers, self-employed individuals, sole entrepreneurs, and other natural persons who conduct business based on a commercial license.
- If the annual turnover from business activities is up to 1 million dirhams, the tax rate is 0%.
- Upon exceeding the threshold of 1 million dirhams, natural persons must pay corporate tax at a rate of 9% on profits exceeding 375,000 dirhams.
- Freelancers and sole entrepreneurs can apply for the Small Business Relief (SBR) regime if their revenue is up to 3 million dirhams.
Thus, with the SBR regime, the corporate tax rate for individuals can be reduced to 0% if their revenue does not exceed 3 million dirhams.
When the turnover reaches 1 million dirhams, individuals conducting business are required to register for corporate tax purposes and annually file a tax return.
Who is exempt from corporate tax?
The new tax rules do not apply to certain categories of persons:
- Federal governments and the governments of the Emirates, their agencies, authorities, and other government entities;
- State-owned enterprises;
- Companies engaged in the exploration of natural resources in the UAE;
- Public benefit organizations;
- Investment funds;
- Government and private pension funds and social security funds.
Which incomes are not subject to corporate tax?
- Individual salary
- Investment income and income from deposits
- Real estate income
- Rental income
- Dividend income
- Inheritance
- Capital gains
Conclusion
To conduct business in the UAE legally and transparently, avoiding potential tax and banking issues, all companies and individuals engaging in business activities in this country should carefully comply with tax obligations, file tax returns on time, and submit financial statements to the relevant authorities. Our team of experienced tax and business consultants and accountants can help you understand all the intricacies of taxation in the UAE. Contact us and we will address your concerns!
Key facts:
- UAE Corporate Tax is 9%
- Profits below AED 375,000 are exempt from Corporate Tax
- Companies must register for Corporate Tax in 2024
- Filing tax returns annually
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Frequently Asked Questions
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Do offshore companies have to pay corporate tax?
If a foreign company does not have a permanent establishment and sources of income in the UAE, it is not subject to the new corporate tax law and therefore does not pay it.
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Is it mandatory to keep accounting records and submit financial statements in the UAE?
All companies in the UAE must provide financial statements prepared in accordance with IFRS.
In addition, proper accounting will help companies justify their profits and the source of income, which will facilitate filing tax returns without errors.
All transactions must be recorded and supported by invoices and other supporting documents such as contracts, bills of lading, etc.
The starting point for calculating taxable income will be the accounting profit/loss.
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Do companies have to file tax returns?
Starting from June 1, 2023, all UAE companies must register with the Federal Tax Authority (FTA) and file annual tax returns regardless of whether they pay a 9% tax or not.
Taxpayers must file tax returns annually on the EmaraTax portal. Taxes must be paid within 9 months after the end of the tax period.
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If a company pays VAT, does it also have to pay corporate tax?
Yes, if a company is registered for VAT, it must also separately register for corporate tax. Each tax regime has its own rules, and one does not replace the other.
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Can companies offset losses against profits?
Companies can reduce up to 75 percent of taxable income by losses from previous periods. If at least 50 percent of the share capital is owned by the same shareholders, the losses can be carried forward indefinitely. If the owners are new, only 50 percent of such losses can be carried forward to future periods, provided that the nature of the activity has not changed or has changed to a similar one.
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Will companies within a group of companies pay tax separately?
No. A group of companies can be taxed as a single entity.
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If a natural person conducts several types of business activities, should they pay corporate tax separately for each type?
No, if an individual conducts multiple types of business activities subject to tax, then for corporate tax purposes, they are considered a single taxable entity. In this case, only one tax return is filed, indicating the income and expenses for all types of businesses.
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What is transfer pricing in the UAE?
Transfer price or transfer cost is the price of goods or services transferred within a group of companies, related companies, or a multinational company. For example, transfer pricing is used when trading occurs between divisions of the same company or between a company and its subsidiaries.
Transfer prices often become a tool for reducing the tax burden, reducing profits, and manipulating tax obligations.
The new law requires transfer prices in the UAE to be similar to prices that apply in this region between unrelated parties.
Taxpayers engaging in transactions with related parties and related persons will need to fill out and submit a related party disclosure form, as well as maintain global and local documentation. Providing a Country-by-Country Report (CbCR) will still be necessary.
Do you have questions about corporate tax in the UAE, accounting rules, and reporting requirements? We are happy to answer them. Prepare your business for the new tax rules in advance!
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