The United Arab Emirates (UAE) introduced corporate tax on June 1, 2023, marking a pivotal shift in its tax framework. This change reflects the UAE’s commitment to global tax transparency and its ambition to remain a leading financial hub.
This blog post examines the UAE’s corporate tax system, providing businesses with a clear guide to registration, tax rates, exemptions, and compliance requirements.
It doesn’t matter if you’re a mainland company, a free zone entity, or a freelancer; understanding these rules is essential for smooth operations.
The UAE implemented corporate tax to meet international standards for tax transparency and to combat tax evasion. This strategic move has strengthened the UAE’s global financial standing, as evidenced by its removal from the Financial Action Task Force (FATF) “gray list”.
For businesses, this means adapting to a new tax environment to ensure compliance and maintain the UAE’s reputation as a business-friendly destination.
The UAE’s corporate tax rates are designed to be competitive and business-friendly:
Freelancers with an annual turnover below AED 1 million are exempt from corporate tax. If their turnover exceeds AED 1 million, they are subject to the 9% rate on profits above AED 375,000, unless they qualify for Small Business Relief.
Free zone companies can benefit from a 0% tax rate on qualifying income, provided they meet specific criteria to be classified as Qualifying Free Zone Persons (QFZPs).
These criteria include:
Non-qualifying income, such as revenue from activities outside the free zone’s scope, is subject to the 9% tax rate if it exceeds the thresholds mentioned earlier.
Certain entities and income types are exempt from corporate tax, including:
Even exempt entities must register with the FTA to comply with regulations.
Businesses must file an annual tax return through the EmaraTax portal within nine months of their financial year-end. For example, if your financial year ends on December 31, the tax return is due by September 30 of the following year.
Key accounting requirements include:
Proper bookkeeping, supported by invoices and contracts, is critical for compliance.
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Category | Corporate Tax | VAT (Value Added Tax) |
Purpose | Tax on business profits to generate government revenue | Consumption-based tax collected at each stage of the supply chain |
Applies To | Net profit of businesses operating in the UAE | Most goods and services sold or imported into the UAE |
Taxpayer | Companies and business entities | End consumers, but collected and filed by businesses |
Rate | 0% up to AED 375,000; 9% above that threshold (for most entities) | 5% standard rate (some items are zero-rated or exempt) |
Filing Frequency | Annually (within 9 months of financial year-end) | Monthly or quarterly, depending on business turnover |
Registration Trigger | Mandatory for most businesses, regardless of profit level | Mandatory if taxable supplies exceed AED 375,000 per year |
Deductibility | Business expenses are deductible if they meet FTA criteria | Input VAT can be reclaimed on eligible business expenses |
For businesses with multiple entities, the UAE allows tax grouping if a parent company holds at least 95% of shares, voting rights, or profits in its subsidiaries.
Tax groups file a single tax return, simplifying compliance. Additionally, businesses engaging in transactions with related parties must adhere to transfer pricing rules, ensuring prices align with market rates for unrelated parties.
This requires submitting related party disclosures and, in some cases, Country-by-Country Reporting (CbCR).
To get to know about the UAE corporate tax system effectively, businesses should:
1. Register Promptly: Meet the registration deadlines to avoid penalties.
2.Maintain Accurate Records: Keep detailed financial records in line with IFRS.
3. Understand Your Tax Obligations: Assess whether your business qualifies for exemptions or relief.
4. Seek Professional Guidance: Consult tax specialists or accounting firms for tailored advice.
5. Stay Updated: Regularly check the FTA’s website for updates on regulations.
Getting to know about the UAE’s corporate tax system may seem complex, but with proper planning and understanding, businesses can ensure compliance while focusing on growth.
By registering on time, maintaining accurate records, and leveraging exemptions where applicable, companies can grow in the UAE’s dynamic business environment.
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