All About Corporate Tax in the UAE

The Ministry of Finance of the United Arab Emirates (UAE) issued the Federal Decree-Law No. 47 of 2022 on 09th December 2022 to tax corporations and businesses. The Federal Tax Authority (FTA) stipulates that businesses are subject to 9% corporate tax from the start of the financial year commencing on or after 1st June 2023.

UAE became the fourth among the GCC countries to implement the federal corporate tax.

The corporate tax is intended to help the UAE accelerate its development and transformation, position the country as a world-leading hub for business, and ultimately achieve its strategic objectives. Further, the UAE government builds its corporate tax regime from best global practices and incorporates internationally accepted principles.

Let’s understand more about UAE corporate tax in detail.

What is corporate tax in UAE?

Corporate tax is a direct tax levied on the profit or net income earned on business income of corporations and other entities. Corporate tax is also called corporate income tax or business profits tax.

This tax applies to all UAE businesses except those extracting natural resources, which will be continued to tax under emirate-level corporate taxation. However, foreign individuals and businesses will be subject to corporate tax only when they run a business or trade continuously or regularly in the UAE.

Further, UAE corporate tax applies equally to all categories of profits and other income reported in the financial statements.

Applicability of UAE corporate tax

The UAE corporate tax applies to the below taxable persons:

• Companies and other juridical persons incorporated in UAE
• Companies and other judicial persons that are effectively managed and controlled in the UAE
• Individuals conducting a business or business activity in the UAE
• Foreign legal entities having a Permanent Establishment (PE) in the UAE

Further, the Corporate Tax Law applies on both residence and source basis.

• Residence basis: A resident’s income derived from domestic and foreign sources is taxable under UAE corporate tax.
• Source basis: The corporate tax applies to a non-resident person’s income earned using the sources within the UAE.

What is the corporate tax rate in UAE?

The authorities will levy the corporate tax @ 9% on taxable income exceeding AED 375,000 w.e.f from 1st June 2023.

The below table explains the corporate tax rates:

Resident taxable person

The following categories of persons are considered residential taxable persons:

1. Companies and other juridical persons incorporated under the UAE laws 
2. Juridical persons incorporated in the UAE under the mainland legislation or applicable free zone regulations
3. Juridical persons created by a specific statute
4. Foreign companies and juridical persons effectively managed and controlled in the UAE
5. Natural persons earning income from a business or business activity in the UAE

Qualifying free zone person

A person doing business in a free zone is a free zone person. However, a free zone person will be considered as a qualifying free zone person only when:

• Maintains adequate substance in the UAE
• Earns qualifying income
• Not selected to pay corporate tax at the standard rates
• Comply with the transfer pricing regulations under the Corporate Tax Law

Who is exempt from corporate tax in UAE?

FTA exempts certain businesses or entities from corporate tax due to their importance and contribution to the UAE’s social fabric and economy.

The following persons are exempted from UAE corporate tax:

Corporate tax registration in UAE

FTA has launched early registration under the corporate tax regime through the EmaraTax portal. Further, it explained that:

• The early registration facility is available from January 2023 to May 2023 for specific companies operating in the UAE. 
• These selected companies would receive invitations from the FTA via email and SMS.
• Later, after this phase, the FTA will open the registration window for other companies and businesses.
• It will give ample time for businesses to apply for registration.
• Also, when registration opens, priority will be given to businesses whose financial year starts on 1st June 2023.

Recently, FTA invited all public joint stock companies and private companies (resident for corporate tax purposes) to register under the UAE corporate tax from 15th May 2023 onwards. However, this phase does not cover free zone persons. Further, corporate tax registration for other categories of taxable persons, such as natural persons, will open later.

Role of books of accounts in UAE corporate tax

In the digital transformation era, businesses in GCC countries, including UAE, are digitising books of accounts. The businesses shall move from managing books of accounts to automating them amid the Value Added Tax (VAT) introduction a few years ago and the upcoming corporate tax.

The books and financial statements are more critical for businesses as the net profit derived from financials becomes the basis for arriving at the corporate tax. Hence, businesses must maintain the data accurately to arrive at the corporate tax liability correctly.

FAQs

1. Is corporate tax implemented in UAE?
Yes, the tax authorities in UAE plan to implement the corporate tax in UAE w.e.f 1st June 2023.

2. What is the corporate tax in UAE?
Corporate tax is levied on the net profit made by the businesses. It mandates companies to pay a specific percentage of profit as tax.

3. What is the corporate tax rate in UAE?
The corporate tax rate is at 9% in UAE. However, the corporate tax rate for net profit was up to AED 3,75,000 is 0%.

4. What is the difference between VAT and corporate tax?
Value Added Tax (VAT) is charged on the supply of goods or services. However, corporate tax is charged on the net profits of the business.

5. Is it mandatory to register under UAE corporate tax?
Federal Tax Authority (FTA) invited all public joint stock companies and private companies to register under the corporate tax from 15th May 2023 onwards. Further, the authority will open registration for other categories later.