UAE Introduces 9% Corporate Tax for Businesses from 2023
The tax-free regime has attracted many businesses to the Gulf nations. A latest UAE corporate tax diminishes the UAE’s tax-free status, while Free-Zone companies will continue to receive tax relief. However, we will see that in comparison to other countries, the new Corporate Tax system continues to be very appealing and supportive of small businesses.
What is a Corporate Tax?
Corporate tax is a type of direct tax in the UAE. FTA is responsible to collect the tax from the companies who made profit in UAE beyond certain threshhold through their businesses.
What is the Timeline for UAE Corporate Tax becoming Effective?
Corporate Taxes are imposed on UAE-based businesses commencing in fiscal years beginning on or after June 1, 2023, as per UAE’s Ministry of Finance.
Which Businesses are Subject to Corporate Tax in UAE?
To reduce compliance burden, businesses in the UAE will be subject to a corporate tax regime that incorporates best business practices from around the world. With a few exceptions and adjustments, the profit reported by UAE businesses in their financial statements will be subject to corporate tax, according to internationally accepted accounting standards. With the exception of natural resource extraction, that will persist to be taxable at the Emirate level, all commercial activities and businesses will be subject to corporate tax.
To encourage start-ups and small businesses, the UAE corporate tax regime will be one of the most competitive in the world, with a standard tax rate of 9 percent (9%) and a zero percent (0%) tax rate on taxable profits up to AED375,000.
How will the Large Multinational be Charged?
A different tax rate applies to large multinational corporations that meet certain criteria described by the OECD’s ‘Pillar Two’ project.
Under the OECD Base Erosion and Profit Shifting project’s “Pillar Two,” “Large” refers to a multinational company with global revenues exceeding EUR 750 million (approximately AED 3.15 billion).
Do Individuals have to Pay Income Tax?
Individuals will not be taxed on income earned from employment, real estate, other investments or any other source that has been licensed or authorized in the UAE.
Does the Corporate Tax apply to Free-Zone Companies as well?
The UAE Corporate Tax scheme will continue to provide incentives to Free-Zone companies that meet regulatory requirements and do not do business with mainland UAE, because Free-Zones have had a significant impact on the UAE’s economy and competitiveness.
Will an Individual who Invests in UAE Real Estate be subject to Corporate Tax?
Corporate Tax is not implemented on Individuals in UAE, if they carry out commercial activity in their individual capacity without obtaining a licence or permit.
What other Changes have been made?
UAE will not impose Corporate Tax on investors who do not conduct business in the UAE also not on domestic and cross-border payments.
Dividends and capital gains received from qualifying shares will be tax-free for Dubai businesses with international headquarters.
How would UAE Corporate Tax be Calculated?
Assume a business has a Net Profit of AED 750,000 for the fiscal year ending in 2024. Calculation of Corporate Tax are as follows:
- Taxable income up to AED 375,000 at 0% = AED 0
- Portion of taxable income above AED 375,000 (i.e., AED 750,000 – AED 375,000 = AED 375,000) at 9% = AED 33,750
- The company’s total income tax liability will be AED 0 + AED 33,750 = AED 33,750.
What does it Mean for You and Your Business?
As a business, you need to be more disciplined & systematic in record keeping and bookkeeping as any disallowed expense (due to missing source document) can directly increase your tax liability Thus, poor record keeping system is like a hole in your profit. Also, certain owner compensation practices need to be provised. Last, but not the least, those groups with some companies in Mainland, unlike others in freezone, need to make some strategic choices, before Corporate Tax is implemented in 2023.
For corporate tax filing and registration, contact finnection via email at info@finnection.ae or call us at our toll free number +971 800 0120070
Disclaimer: Above information is subject to change and represent the views of the author. It is shared for educational purposes only. Readers are advised to use their own judgement and seek specific professional advice before making any decision. Finnection is not liable for any actions taken by reader based on the information shared in this article. You may consult with us before using this information for any purpose.