Corporation tax shows many enterprises in the UAE have paid no income tax on their revenues till date. This is about to change, with the UAE’s Ministry of Finance (MOF) announcing the implementation of a federal corporate income tax (CIT) on January 31, 2022. For fiscal years beginning on or after June 1, 2023, the CIT regime is projected to apply. Keep reading to get detailed information on UAE’s corporate tax policies.
This move stems from the UAE’s intention to comply with international tax rules, following similar movements in neighbouring Gulf states, while reducing compliance costs for UAE firms and protecting small businesses and start-ups. The UAE, which is home to the world’s most important commercial hub, will continue to have one of the lowest corporation tax rates in the world.
How Does Corporate Tax Work?
Except for the commercial activity of extracting natural resources, which will continue to be taxed according to emirate specific taxation, the UAE corporate tax will apply to all business and commercial activities in the UAE. The corporation tax will be levied on ‘taxable income,’ which is defined as a business’s accounting net profit after deducting specific items (deductibles), as defined by the UAE corporate tax law.
Commercial activities, which comprise all types of business activities carried out in the UAE under a trade license or permit, as well as income received under freelancer licenses (given taxable income exceeds AED 375,000), are covered under the UAE corporate tax framework.
The Following Corporate Tax Rates Are Proposed To Be Used:
- 0 per cent rate on taxable income up to AED 375,000
- 9 per cent rate on taxable income above AED 375,000
- A different rate (yet to be announced) for large multinationals with consolidated global revenues exceeding EUR 750 million
The Following Exemptions Are Available Under The Uae Corporate Tax Regime:
- Employees in both the public and private sectors are exempt from paying taxes on their own salaries and earnings.
- Businesses registered in UAE free zones will be subject to the UAE corporate tax framework, but only to the extent that their operations are conducted within the UAE. The corporation tax exemption provided to such business entities for activity outside the UAE would be honoured under the new corporate tax framework as well.
The Corporate Tax In Dubai:
Companies in Dubai must meet a few conditions imposed by the local government in order to be taxed. First and foremost, the company must be registered and operating in Dubai through a local corporation or branch office, and it must also be involved in trading. In addition, a company tax will be levied on income earned within a tax year. In most cases, the tax year in Dubai corresponds to the calendar year. Only a few categories of businesses are subject to taxes:
- Dubai based companies operating in the gas and oil industry,
- Dubai based branches of foreign banks.
While Dubai gas and oil businesses pay a 55 per cent tax rate on their revenues, foreign bank branches must pay a 20 per cent tax rate on their taxable income. Remitting dividends, royalties, or interests abroad, on the other hand, is exempt from withholding taxes.
The new changes also underscore the country’s commitment to satisfying international tax transparency and anti-avoidance requirements.
Conclusion:
When checking on the internet for the best tax accountants near me, you should look no further than ebs. We have Dubai’s best tax consultants who can assist you with a variety of taxation issues affecting your company in Dubai.
Call us at +971(4) 241 2929 to discuss your needs.