Key Insights for UAE Corporate Tax Landscape

May 27, 2023 Blog

The implementation of corporate tax has significantly altered the tax structure of the United Arab Emirates (UAE). Companies, groups, and individuals using a commercial license are now subject to this corporate tax on earnings.

This blog’s objective is to provide helpful information about the UAE’s corporate tax system, including the applicable tax rates, exemptions, registration and filing procedures, and the implications of the corporate tax on businesses.

  1. What is the percentage of corporate tax in the United Arab Emirates?

    The majority of businesses, organisations, and others operating in the UAE with a commercial licence are subject to corporate tax, which is a direct federal tax levied on profits. A 9% tax will be imposed by the federal government starting on June 1st, 2023.

  2. What are the UAE’s corporate tax rates?

    A system of progressive corporate tax rates has been put in place in the UAE. On annual taxable profits up to AED 375,000, small firms and startups pay zero tax. Over AED 375,000 in taxable profits triggers a 9% tax rate. A wide range of rates may be available to multinational corporations that are subject to the Base Erosion and Profit-Sharing (BEPS) regulations of the OECD and fulfil the requirements of Pillar 2 of the BEPS 2.0 framework.

  3. Who are liable for corporate tax in the UAE?

    Corporate tax is imposed on all individuals in the UAE who operate firms with a commercial licence, foreigners who do regular business or trade in the UAE, financial activities, and companies engaged in real estate management, development, and brokerage.

  4. Who is not liable for corporate tax?

    According to the Ministry of Finance’s directive, the following entities are exempted from corporate profit tax:

    • i. Government and government-controlled entities
    • ii. Extractive businesses and non-extractive natural resources businesses
    • iii. Quality public benefit entities
    • iv. Public or private pension and social security funds
    • v. Qualifying investment funds
    • vi. Wholly-owned and controlled UAE subsidiaries of a government-controlled entity, qualifying investment fund, or a public and private pension or social security fund
    • vii. Businesses undergoing liquidation or termination
    • viii. Personal income earned from employment, investments, and real estate without licensing requirements is not taxable.

    The following sources of income are not subject to tax:

    • i. Salary (perks, allowances, and bonuses)
    • ii. Residential rental income on real estate
    • iii. Investment income from bonds, shares, and other securities

  5. What about concerning tax groups?

    For the purposes of corporate tax, two or more taxable individuals who satisfy certain requirements may want to create a “tax group” and are then classified as a single taxable company. The parent business and its subsidiaries must be resident juridical persons, share the same fiscal year, and compile their financial statements in accordance with the same accounting rules in order to constitute a tax group.

  6. When should companies register, file, and pay their taxes?

    All taxable individuals and companies, even those in free zones, must register for corporate tax and have a registration number. For each tax period, taxpayers have nine months from the end of the pertinent period to file a tax return.

    • a. At least 5% of the shares of the subsidiary company must be owned by a UAE shareholder business.
    • b. Only if the foreign subsidiary is subject to CT (or an analogous tax) at a rate of at least 9% will the
      participation exemption be granted.

  7. What expenses are eligible for corporate tax deductions?

    All proper business costs undertaken with the sole purpose of producing taxable revenue are deductible. However, depending on the accounting system used and the kind of expenditure, the timing of the deduction may vary. The cost of capital assets is normally recognised through depreciation or amortisation deductions throughout the course of the asset’s or benefit’s economic life.

  8. What prerequisites must be met in order to qualify for the CT regime’s exemption from foreign dividends and capital gains?

    In order to get ready for the UAE CT regime and comprehend its effects on your company, you need think about the following:

    • a. Look over the Corporate Tax Law and related resources on the websites of the Federal Tax Authority and Ministry of Finance. Federal tax agency and the ministry of finance.
    • b. Make use of the facts at your disposal to ascertain the implementation date and if your company will be subject to UAE CT.
    • c. Become familiar with the requirements of the Corporate Tax Law, including the registration requirements, the accounting/tax period, the filing dates, any potential elections or applications, and how the CT may affect your contractual commitments to customers and suppliers.
    • d. Make sure your company keeps the paperwork and financial data required for UAE CT purposes.
    • e. Consult the Federal Tax Authority and Ministry of Finance websites often for updates and new details on the UAE CT system.
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