Corporate tax in UAE primarily aims at helping countries build a sustainable economy to enhance corporate governance and thus strengthen the economy of the nation. Through the introduction of corporate tax in the UAE, the government aims to strengthen the country’s position as a leading global hub for businesses and investments. The corporate tax can accelerate the country’s development and transformation in attaining its strategic objectives. The ultimate aim and the uttermost importance of the corporate tax in UAE is that through the implementation of this direct tax, the country reaffirms its commitment to meeting international standards for tax transparency and preventing injurious tax practices.
In January 2022, The Ministry of Finance announced that the UAE government will be implementing Federal Corporate Tax (CT) on the net profit of businesses. The Corporate Tax in UAE will be effective from the 1st of June 2023. Corporate Tax or Corporate Income Tax or Business Profits Tax will be applicable on or after the 1st of June 2023 depending on the financial year followed by the businesses, and from there on, all over the country, every business apart from the exempted group will be subjected to CT. Corporate tax is a type of direct tax imposed on net income.
Corporate Tax Services UAE
- Net profit up to AED 3,75,000 is tax-free.
- 9% tax on net profits in excess of AED 375,000
- For large multinationals meeting specific criteria, a separate tax rate (yet to be specified) will be applicable.
Scope of UAE Corporate Tax
- Every business and individual conducting business activities under a commercial license in UAE
- Free zone business- The UAE corporate tax regime will keep honouring the corporate tax incentives currently provided to free zone businesses that adhere to all legal requirements and don’t have offices located on the country’s mainland.
- Foreign entities and individuals are only allowed if they conduct a trade or business in the UAE in an ongoing or regular manner
- Banking operations
- Companies involved in real estate management, construction, development, agency, and brokerage.
Exemptions for Corporate Tax in UAE
The UAE’s new corporate tax law gives certain organizations and activities a free pass. This means they don’t have to pay any corporate tax on profits from their exempt work.
Government Bodies:
Government-Controlled Organizations:
Federal or local government bodies must fully own these exempt government-controlled organizations. Their profits also have to go back to the government treasury. And the board of directors should be appointed by the government as well. So it’s quite a high bar!
Natural Resources Companies:
Businesses involved in natural resource extraction or processing in the UAE also don’t pay corporate tax. This includes oil, gas, mining, minerals – anything that comes straight from the natural environment. The exemption covers exploring, extracting, transporting, refining, marketing, and selling natural resource products. The goal is to encourage investment in this important sector of the UAE economy. However, there could still be some taxes to pay to individual Emirates since natural resources belong to each Emirate
Charities and Non-Profits:
Private Pension and Gratuity Funds:
Expenses that can be deducted while calculating the corporate tax
In corporate tax, certain expenses which fall under general accounting rules may not be subjected to the tax deduction. These are added back to accounting income for determining the Taxable income.
- Depreciation or amortization expenses for Capital Assets.
- Business setup, license renewal, and other government fees and charges that are paid entirely or primarily in the course of business.
- A value-added tax that is not recoverable under VAT legislation.
- 50% of the client’s leisure costs.
- Interest costs on debt funding up to 30%.
- Loans to related parties are deductible only if they serve a legitimate business purpose.
- Payments made to a mainland branch of the Free Zone entity may be deductible
Expenses that cannot be deducted while calculating the corporate tax
The following expenses cannot be deducted from a taxable person’s taxable income accrued during a taxable period:
- Any expense that was not paid in the course of the taxable person’s business.
- Any expense incurred in order to receive exempt income
- Losses not incurred as a consequence of or related to the taxable person’s business
- Any extra spending authorized by a Cabinet decision in response to a minister’s recommendation
Financial records required for Corporate Tax
Businesses must be prepared to present the necessary documents in order to register for Corporate Tax in the UAE. The registration and payment of business taxes will be done online. The documents listed below may also be needed for Corporate Tax Registration in the UAE.
- Trade License Copies (must not be expired).
- Passport photocopy of the license’s owner/partners (must not be expired).
- License’s owner/partners Emirates ID (must not be expired).
- Power of Attorney (or Memorandum of Association) (POA)
- Contact information (Mobile Number and Email).
- Company contact information (complete address and P.O. Box).
- Report on the Annual Financial Audit.
What are free zones, and how are they tax-free?
The Corporate Tax Law introduces the notion of a “Qualifying Free Zone Person” (QFZP), which is broadly defined as a free zone firm or branch that:
- Maintains sufficient substance in the UAE
- Obtains eligible income (as determined by a Ministerial Decision).
- Meets transfer pricing requirements.
- Meets any other conditions imposed by a ministerial decision.
A QFZP will still be subject to CT, but its qualifying income may be taxed at 0%. A QFZP may choose to forego this advantageous regime and pay the ordinary CT rate.
How can businesses file for corporate taxes in the UAE?
The Corporate Tax Law requires UAE businesses to keep transfer pricing paperwork (i.e., the master file and local file), subject to specific restrictions specified in a Ministerial Decision. Within 30 days of receiving a request, TP paperwork must be sent to the FTA.
Additionally, taxpayers may be required to submit a TP disclosure form in addition to the Corporate tax return.
The Gulf Cooperation Council countries (GCC) remain attractive for foreign investments due to their favorable tax rates and also their geographical location, which in turn attracts global investments. Before the implementation of corporate tax, there was a wide range of government fees and levies imposed for the revenue of the country throughout the Gulf Cooperation Council Nations.
Summing It Up
We can conclude that with the introduction of Corporate Tax, the country should not limit the investments because the country has the lowest corporate tax rate compared to the other countries so far. And in return, the UAE is offering you a wide spectrum of opportunities with a high standard of living, futuristic infrastructure, and attractive geographical locations.
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