Corporate Tax is comparatively a new tax introduced in UAE. It is a form of direct tax applied on the net income or profit of a certain business. This tax was designed to incorporate best practices globally and to lessen the compliance burden on business in UAE. Since then, corporate tax consultants are working hard to understand this law and implement on their partner’s businesses. According to corporate tax advisors, this tax will help businesses in many ways, and will prove to be beneficial for the country as well. Since, it is a new tax by FTA, it comes along with new definitions and terminologies which we will focus on in this blog for your better understanding.
- Accounting Income: A financial statement prepared for a tax period, it includes net profit or loss.
- Authority: It refers to the Federal Tax Authority (FTA).
- Corporate Tax Law: Federal Decree Law no. 47 of 2022 on the Taxation of Corporations and Businesses.
- Corporate Tax Payable: An amount that becomes due by the authority after registration.
- Exempt Income and Person: This income and the person that is exempted under the corporate tax law.
- Financial Year: It is the Gregorian calendar year, or a period of twelve months for the taxable person to prepare their financial statements.
- Foreign Tax Credit: It is the tax paid on income and profit under foreign jurisdiction.
- Free Zone Person: Refers to the person incorporated and registered in a free zone.
- Free Zone: A geographical area in the state, made as per the decision of cabinet at the recommendations of the Minister of Finance.
- Government Controlled Entity: Refers to any legal entity which is directly or indirectly owned and controlled by the government entity.
- IFRS: International Financial Reporting Standards.
- License: A document by the licensing authority under which a business activity is conducted.
- Mandate Activity: It is conducted by a government-controlled entity, with respect to legislation regulating as an entity.
- Natural Resources: It includes water, oil, gas, coal, natural minerals, other non-renewable and non-living resources that might be extracted within the UAE’s territory.
- Net Interest Expenditure: It is the expenditure in excess to interest income as determined by the law.
- Qualifying Income: It is the income earned by a qualifying free zone person; the corporate tax is imposed as per the regulations.
- Revenue: It is the gross amount of income which is earned during the taxation period.
- State: The state refers to United Arab Emirates (UAE).
- Tax Loss: Negative taxable income for a certain tax period.
- Tax Period: The time frame within which tax should be filed.
- Tax Registration Number: A unique number given by the authority after registration.
- Tax Registration: The process for registration of Corporate Tax.
- Tax Return: It is the information filed with FTA with schedules and attachments to fulfil the purpose of corporate tax.
- Taxable Income: It refers to the amount on which the Corporate Tax is implemented.
- Taxable Person: A person who is applicable to pay the tax, it may be a resident or a non-resident person.
- Turnover: It is the total amount of income which is derived during a Gregorian calendar year.
- Unincorporated Partnership: It is a partnership as per the law between two or more people of an association.
- Withholding Tax: It is the corporate tax which is withheld from the State sourced income.
The important definitions required to understand the Corporate Tax UAE are stated above. Other than these understanding if you require a professional corporate tax advice, many corporate tax consultants are offering these services in UAE. One of the top consultants offering tax consultation services are ebs Chartered Accountants. It is better to hire a professional for your Corporate Tax Registration and filing to ensure a smooth taxation process and avoid any penalties due to delay.
FAQs
What is corporate tax in UAE?
In January 2022, Ministry of Finance announced that it will introduce federal corporate tax (CT) on the net profits of businesses. The tax will become applicable either on 1 June 2023 or on 1 January 2024, depending on the financial year followed by the business.
Who is eligible for corporate tax in UAE?
An entity that is incorporated in the UAE will automatically be considered a ‘Resident’ Person for the purposes of UAE Corporate Tax. Equally, a natural person who is engaged in a Business or Business Activity in the UAE will also be considered a Resident Person for UAE Corporate Tax.
What are the corporate tax criteria in UAE?
0% for Taxable Income up to and including AED 375,000. 0% on Qualifying Income. 9% on Taxable Income that is not Qualifying Income as specified in Cabinet Decision No. 55 of 2023.