The UAE has always been recognized as a business-friendly destination with its flexible tax environment, including the absence of federal corporate tax. However, the UAE introduced a change in its tax system by implementing the federal corporate tax regulations in the financial year starting from 1 June 2023. Individuals can get better insights into the intricacies of tax regulations with UAE corporate tax training.
This article will decode the key regulations of corporate tax in the UAE.
What is corporate tax?
Corporate tax is a kind of tax imposed on the profits earned by corporations and businesses. It is a direct tax levied by the government on the income generated through the business’s activities. The tax rate varies from country to country. The corporate tax is calculated as a percentage of the taxable income of the company generally.
The government’s goal is to keep a balance between the economic growth of the country and ensuring businesses contribute their fair share to support the welfare of society.
Understanding corporate tax in the UAE
Corporate tax is also known as business profit tax or corporate income tax. it is a direct tax levied on the net profit or income of corporations and other business entities. The UAE imposed the federal corporate tax recently unlike other countries. The introduction of the corporate tax in UAE signifies a major shift in its tax structure. The government requires companies or businesses to pay a percentage of their profits as tax.
There are many workshops, educational programs, or courses for corporate tax training designed to provide you with the required knowledge to understand corporation taxation. Also, you can get assistance from the best accounting and bookkeeping firms in UAE such as ebs.
Applicability of corporate tax in UAE
According to the corporate tax regulations in UAE, businesses with a taxable net profit exceeding 375,000 AED have to pay this tax. However, there is a provision to support small businesses and start-ups. Those with a profit of up to 375,000 AED are exempt from corporate tax. This move aims to encourage entrepreneurship in the SME sector.
Also, the tax applies to all commercial activities and businesses, except for:
- UAE government-controlled entities
- UAE government entities
- Businesses engaged in the extractive businesses in UAE
- Branches of foreign banks
- Businesses engaged in non-extractive natural resource business in the UAE
Corporate tax rates in the UAE
The corporate tax rate in the UAE is set by the Ministry of Finance which is 9% of the net profit. This means that companies earning a net profit beyond the tax-exempt threshold then they will be subject to a 9% tax on their profits. However, the corporate tax rate is quite competitive compared to the global standards which makes the UAE still attractive to businesses.
What is a natural person?
The term natural person refers to a living human person of any age, whether resident in UAE or elsewhere. For incapacitated individuals or minors, the corporate tax obligation will be fulfilled by their legal representatives.
Corporate tax Law and natural persons
To balance the field between incorporated businesses and unincorporated businesses conducted by individuals. Corporate tax law applies to natural persons to the extent they are conducting a business activity or a business in the UAE. Also, they have a Permanent Establishment in UAE or derive State Sourced Income such as income that is accrued in or derived from the UAE.
Moreover, certain types of income are always exempt from Corporate Tax for natural persons. For a natural person, the Corporate Tax Law does not apply to their Personal Investment income, employment income, or Real Estate Investment Income. Now let’s discuss some of the key considerations.
Key considerations
The following considerations are the important indicators to know whether a natural person will be subject to Corporate Tax:
- As defined in the corporate tax law, a natural person who conducts a Business or Business activity in the UAE is considered a taxable person and a resident person.
- A natural person is subject to corporate tax on their business only where the total turnover derived from business conducted in UAE exceeds AED 1 million which Gregorian calendar year.
- For a natural person, income from the following categories is not considered as arising from a business activity or business, and is disregarded when determining Turnover and not subject to corporate tax, regardless of the amount:
- Personal investment income
- Wage
- Real estate investment income
- Where the turnover from business activities or a business conducted in the UAE exceeds AED 1 million within a Gregorian calendar year, the natural person is required to comply with the obligations of the Corporate Tax Law, including submitting corporate tax returns, corporate tax purposes with the FTA and paying corporate tax.
Natural persons: resident and non-resident
For natural persons, physical residence in UAE, whether by virtue of citizenship or a residency visa, is not the criterion that determines whether they are resident Persons for corporate tax purposes or whether their income is taxable. Here is the approach:
- When a natural person resides in the UAE and conducts Business activities or business in UAE, they are considered to be a Resident Person. Therefore, a Taxable Person for corporate tax purposes, is subject to the key considerations discussed above.
- When a natural person resides outside the UAE, for instance having their home in another country. They become a resident person for corporate tax purposes if they conduct business in the UAE is subject to the key considerations above. Moreover, if the natural person has not invoked the application of an applicable Double Taxation Agreement, any natural person conducting business in the UAE will be a resident person for purposes of the Corporate Tax Law.
Conclusion
In this article, we discussed corporate tax and the regulations in UAE. We discussed the corporate tax for natural persons also. However, you can get assistance from the best corporate tax services providers in UAE. ebs is one of the best accounting and bookkeeping firms in Dubai, UAE. We have been guiding many businesses about tax regulations and compliance. Our corporate tax services will help you to stay compliant.
Our services include the following:
Experienced and qualified tax advisors
ebs has a team of experts who understand the UAE’s corporate tax landscape and can guide you through every step of the process.
Comprehensive services
They offer a full range of corporate tax services, including registration, compliance, filing returns, tax planning, and more.
Technology-driven solutions
ebs utilizes efficient technology platforms to streamline your tax processes and improve communication.
Personalized approach
They provide customized solutions tailored to your specific business needs and challenges.
We also provide services such as accounting and bookkeeping services, Auditing, Due Diligence audit services, and many more. So, you should get in touch with our experts to discuss our services and contact us today.
FAQs
Do I need to register for corporate tax in the UAE?
Yes, all taxable persons, including Free Zone Persons, are required to register for corporate tax and obtain a Registration Number. Even some exempted businesses need to register, so it’s best to check your specific situation with the Federal Tax Authority (FTA) or a tax advisor.
What’s the tax rate for corporations in the UAE?
The standard corporate tax rate in the UAE is 9%, but for businesses with taxable income up to AED 375,000, there’s a 0% tax rate. This benefit helps small and medium businesses. Remember, additional fees or requirements might apply, so consult a tax advisor for a full picture.
How do I register for corporate tax in the UAE?
You can register online through the Emara Tax platform. You’ll need to create an account or migrate your FTA account, provide required documents, and complete the application form. Be aware of deadlines and specific details based on your business type. Consider seeking guidance from a tax advisor to ensure smooth registration.