Who should register for corporate tax in UAE

The need for corporate tax registration

In 2024, businesses in the UAE must sign up for corporate tax. The new obligation to pay tax on business profits applies to most categories of entrepreneurs in the Emirates, which we will discuss in more detail below.

Businesses are now obligated to pay 9% on any income that exceeds AED 375,000. If the profit for the reporting period does not reach this amount, the tax rate will be 0%. The new law is federal in nature, meaning it is applicable across all Emirates without exception.

We want to emphasize that even if your company's profit does not reach the required threshold, this does not exempt you from corporate tax obligations. In this case, your tax rate will simply be 0%. However, you still have the obligations to register for corporate tax with the Federal Tax Authority (FTA), get your tax registration number and to file tax returns. If you fail to do so, you will face substantial fines. For instance, late registration will result in a penalty of AED 10,000.

The first issue you need to address is to complete the simple procedure of registration as soon as possible. To ensure that everything is done correctly and you avoid penalties, consider using the services of professional tax consultants in Dubai.

Deadlines for registration

The registration deadlines depend on the month in which the company obtained its license (the year of issuance doesn’t matter). Anyway, this must be done in 2024. In the case that the business is new, you should complete the corporate tax registration in UAE within 3 months of obtaining the business license.

Who should register for corporate tax in UAE?

To begin with, let's clarify the key concepts that you will need to understand: taxable persons and residents and non-residents for corporate tax purposes.

A taxable person is someone, either an individual or a company, who is required to follow the new corporate tax rules. This means they are responsible for registering for corporate tax in the UAE, paying taxes, and filing tax returns. If it’s a company, it’s considered a legal entity, and if it’s a person, they’re referred to as a natural person. Both types need to meet their tax obligations under the new legislation.

Taxable persons can be residents or non-residents. It is important to note that this classification is not related to residency status in the UAE, the presence or absence of a residency visa for company owners, or whether they are physically present in the UAE. Here, we are discussing these concepts solely for corporate tax purposes.

Resident persons

Legal entities:

Those established and registered in the UAE, whether on the mainland or in a free zone.

Individuals:

People who conduct business activities under a freelance license in the UAE and have turnover of over AED 1,000,000.

Residents legal and individual persons with a business license in the UAE must adhere to the corporate tax requirements.

Non-resident persons

Legal entities:

1. Foreign companies that have a permanent establishment (PE) in the UAE. This means they conduct business from a permanent place such as an office, a factory, or a building site. Subject to corporate tax.
2. Those that earn state-sourced income (e.g., income derived from a UAE tax resident person). If this income isn't tied to a permanent establishment of business in the UAE, these non-residents will be taxed at a 0% rate (a withholding tax).
3. Entities that have a nexus in the UAE. For example they receive income from immovable property within the country. In this case, they must follow the rules for the corporate tax.

Individuals:

Some people can be considered non-residents for corporate tax purposes if they receive state-sourced income. Then they may have to pay a withholding tax.

Now, let's call all the participants by their names. Who is considered a corporate taxpayer and should register in the UAE tax system?

Companies incorporated on the mainland

They are required to register with the tax authority, must pay the 9% tax on profit exceeding 375,000 AED and file their tax return within the specified deadlines. There are no exceptions. 

Example:

In the fiscal year 2024, DesertBloom Technologies generated revenue of AED 5,000,000 by selling its innovative solar panels. After deductions totaling AED 3,500,000, the company's taxable profits amounted to AED 1,500,000. This amount exceeds the threshold of AED 375,000, meaning the company must pay 9% on the excess amount.

Tax calculations will be as follows:

Taxable amount: AED 1,500,000 - AED 375,000 = AED 1,125,000

Corporate tax: AED 1,125,000 * 9% = AED 101,250

Thus, DesertBloom Technologies would be liable to pay AED 101,250 in corporate tax for the fiscal year 2024.

Legal entities in free zones

Free zone companies are now also subject to CT. However, the UAE government has introduced certain tax incentives. In particular, a company may qualify for a 0% corporate tax rate if it is classified as a Qualifying Free Zone Person (QFZP) and earns Qualifying Income. To qualify, the company must satisfy these criteria:

• derive income from transactions with other free zones persons;
• demonstrate adequate substance of your business;
• comply with certain revenue requirements (de minimis);
• fulfill the rules for transfer pricing;
• prepare audited financial statements.

If the freezone company earns both qualifying and non qualifying income, the de minimis requirement will be applicable. It means that the non-qualifying income must not exceed 5% or 5 million AED (whichever is lower) of the total income. If the non-qualifying income exceeds this amount or 5%, the the whole profit will be taxed at 9%

Example:

In the fiscal year 2024, Oasis Data Solutions FZ-LLC earned the following income:

Total income = AED 1,000,000, of which AED 45,000 is a qualifying income from licensing its programs to other free zone persons.

Tax calculation looks as follows:

Since non-qualifying income must not be more than 5% of the total profits to be eligible for a 0% tax, let’s calculate the portions:

AED 1,000,000*5% = AED 50,000. Oasis Data Solutions’ non-qualifying income is more than 5% of the total income (955,00 AED):

This makes the entire profit of 1,000,000 AED subject to the 9% tax.

However, if the non qualifying income is less than 5%, for example:

Total income = AED 1,000,000, of which AED 45,000 is a non-qualifying income from licensing its programs to other free zone persons.

Tax calculation looks as follows:

Since non-qualifying income must not be more than 5% of the total profits to be eligible for a 0% tax, let’s calculate the portions:

Qualifying income: AED 1,000,000*5% = AED 50,000. Oasis Data Solutions’ non-qualifying income is less than AED 50 thousands, so:

Tax liability on 1,000,000 AED is 0%

Self-employed individuals (Freelancers)

Individuals operating a business with a freelance license and that generate a turnover less than or equal to AED 1 million within a tax year  are exempt from corporate tax. Once the turnover exceeds this threshold, they become subject to the corporate tax law and have to comply with the corporate tax requirements which includes registration with the FTA, maintaining accurate accounting records according to the standards of the IFRS and filing the tax returns as at when due.. Profit is calculated based on the resulting revenue, and corporate tax is applied to this sum.

Small Business Relief

For small companies and start-ups, the government has introduced a tax incentive called Small Business Relief. Under this regime, businesses with a turnover less than or equal to AED 3 million are not required to pay 9%. However, they must be registered for corporate tax with the FTA, apply for this regime, and take advantage of the favorable conditions. This incentive is valid until December 31, 2026.

Example:

A natural person, Ms. L, residing in the UAE, is a freelance professional and has the following sources of income during a calendar year:

• Rental income from property investments: AED 2,100,000
• Income from freelance design services: AED 1,750,000

When determining taxable turnover, only the income earned from freelance design services is considered. The rental income from property investments is not earned through a license and, therefore, is not classified as business income for Ms. L, meaning it is excluded from her turnover calculation.

In this case, the turnover is AED 1,750,000. Ms. L will need to get registered. However, since her revenue does not exceed AED 3 million, she can choose to apply for Small Business Relief, provided that amounts in previous tax periods also remain under AED 3 million, and she meets all other qualifying conditions for this relief.

It is important to note that the entire 3 million AED could be the profit of the company (typically for service-based companies). Even in this case, the SBR can still be applied.

Who is exempt from corporate tax?

Some categories of enterprises are defined by the Ministry of Finance as exempt persons. They are:

• Government entities 
• Businesses engaged in the extraction of natural resources or connected with natural resources, but non-extractive
• State-controlled entities and public benefit organizations 
• Public and private pension funds, social security funds, investment funds, and legal entities owned or controlled by an exempt person

The general rule is that registration procedure for the exempt persons is not mandatory. However, they may separately conduct business activities under a business license. In such cases, they must comply with corporate tax laws, like all other taxable persons.

Basic steps of the registration procedure

1. Determine if you are a taxable person for corporate tax in the UAE. 
2. If so, find out if you can apply for Qualifying Free Zone Person or Small Business Relief.
3. Register with the FTA through the Emaratax portal. For a detailed step-by-step guide on how to do this, read here.
4. After the end of the tax period, prepare and file your tax return and pay the corresponding amount of tax.
5. Continue maintaining accounting records and adhering to tax obligations going forward.

You should consider having your accountant or a tax savvy person complete the registration on behalf of the company, so they make accurate selections during the registration as for example, selecting yourself as a qualifying freezone person might not make you eligible for the small business relief. These are things to consider before proceeding with the corporate tax registration.

Key points to remember:

Deadline for tax returns and tax payments: nine months following the end of the tax period

Penalty for late registration: 10,000 AED

Tax registration with Emirabiz

The registration process itself is straightforward, but understanding your tax obligations and eligibility for tax incentives is best handled with the help of a professional tax consultant. At Emirabiz, you will find such a specialist. We will review your case and advise you on the best business registration options to minimize taxes. If you already own a business in the UAE, we can provide guidance on all tax-related issues, find ways to reduce your tax burden, address registration matters, and ensure your accounting records are in order.