The UAE introduced corporate tax back in January 2022 and also released a consultation paper in April 2022. After this UAE authorities published the Federal Decree-Law No.47 of 2022 which is referred to as the Corporate Tax Law. It is true that business is going to be affected by the corporate tax but not everyone is subjected to paying corporate tax. In this blog we are going to look in detail at the eligibility of corporate tax and whether it affects salaries or not.
Corporate Tax Law provides the legislative basis for implementing Federal taxation on businesses and corporations in the UAE.
The corporate tax will be effective for financial years starting on or after 1st June 2023. Corporate tax is applicable to all businesses in the UAE including some exceptions. Corporate tax is mandatory to pay for taxable persons. Businesses and the taxable person must file for corporate tax and register for it as it is going to be effective soon.
According to the corporate tax law, a 9% tax rate will be applicable on companies crossing a net profit over AED 375,000.
Impact Of Corporate Tax On Business
Corporate tax will be imposed on profits and not on the total turnover of the business. Also, corporate tax will not be applied to the salaries of individuals or their income from employment. So, all the employees who are working under some companies are not obliged to pay corporate tax. Those who earned personal income from saving programs or bank deposits and investments in real estate by individuals are also not subject to the tax.
Free zone companies in UAE which comply with all conditions specified in the Executive Regulations of the UAE corporate tax law will be exempt from corporate tax.
Natural resources extracted in the UAE are also exempted but they are subject to emirate-level taxation. Government entities, investment funds, pension funds, and public benefits organizations are also beyond the scope of corporate tax.
The corporate tax will be imposed on taxable persons which include residents and non-residents and Free-Zones making profits of over AED 375,000 per annum.
If the non-residents have a permanent establishment in UAE, then they are subjected to 9% of UAE corporate tax. The corporate tax is not applied to individuals except for some exceptions because it is for businesses and corporations.
If an individual is earning by employment and getting a monthly gross salary, then they are not subject to pay and file for corporate tax. If the individual is conducting business as an unincorporated partnership or proprietorship, then that person will have to file for the corporate tax on the profit generated from the business. The individual is not subjected to paying the corporate tax on his personal income.
Corporate tax is imposed on UAE-registered corporations or foreign corporations that meet the criteria of residency. The UAE authorities require UAE corporations to file and pay taxes on their incomes within the UAE and in other countries also.
Corporate tax has created a lot of hype in the UAE because it was introduced for the first time to lift the UAE market. Small businesses having an income of AED 375,000 or less will have to pay a 0% tax rate. If you want to know further where your company lies in order to pay the corporate tax then our expert team can help you well.
Reach out to our accountants for a meaningful discussion on corporate tax and its regulations.