Starting from June 2023, all businesses will start paying the UAE corporate tax. Here is all you need to know about UAE corporate tax. All the businesses in the United Arab Emirates are expected to buckle up for Corporate Tax Compliance, which will be effective from June 2023. All those Companies falling under the eligibility of CT (Corporate Tax) are urged to outset accounting and bookkeeping services and formal auditing to establish their financial credentials for filing tax returns and tax calculations. Therefore, companies are highly recommended to outsource approved auditing and accounting services to prepare beforehand. According to the Ministry of Finance, the corporate tax will help UAE to become a competitive market and also achieve its development ambitions. Under the new tax regime, all those businesses or corporations having taxable profits of more than AED 375,000 will be mandated to pay a tax rate of 9% from June 2023 or after. The rate of corporate tax is the lowest rate in the Gulf Cooperation Council region. Here is all you need to know about the UAE corporate tax. Background of Corporate Tax in UAE Investors and entrepreneurs globally have always considered the UAE one of the finest places to set up a new business.
Both startups and companies have favored the UAE to the country’s strategic location, amazingly stable political environment, great business infrastructures, and the 0% tax corporate regime. The introduction of a 5% value-added tax (VAT) in 2018 was a great initiative to become less dependent on oil in recent years. Now as the government is looking forward to increasing its non-oil revenue by introducing the UAE corporate tax. Another reason for introducing the corporate tax is the government’s aim to meet the international standards of taxation policies. Is Corporate Tax the Same as VAT? When the government of UAE announced corporate tax, many businesses were confused with the value-added tax which is different from CT. Corporate Tax is levied on the taxable income of the business. On the other hand, VAT is levied on the sale of services and goods and the customer pays VAT at the time of purchase. The companies must pay the corporate tax on their annual net profit. VAT is collected from clients when selling a service or product and then remit to the government. Businesses will have to pay the corporate tax directly to the government and it will be calculated by the net income of the company rather than the total sales or revenue volume. Corporate Tax can be calculated as follows:
- 0% corporate tax for taxable income not exceeding AED 375,000.
- 9% corporate tax for taxable income exceeding AED 375,000.
- For instance, if a firm earns a taxable profit of AED 400,000 in a financial year, then the corporate tax will be AED 2,250 (AED 400,000 – AED 375,000 = AED 25,000 at 9%).
Which Companies Will Pay Corporate Tax? In short, those businesses that earn a net profit of more than AED 375,000 will have to pay UAE corporate tax to the government. These businesses include UAE companies that are controlled, managed, or incorporated in UAE and some entities in the free zone.
- Businesses that report financial years from 1st January 2023 will start tax calculation from 1st January 2024.
- Businesses that report financial years to form 1st July will start the calculation of tax from 1st July 2023.
There are few exemptions for the eligibility of this tax, otherwise, all commercial activities that is taking place in UAE will have to register for the tax and also file it. Corporate Tax Exemptions The Ministry of Finance has announced a few exemptions for some entities that are not obliged to pay corporate tax in UAE. If you fall under any of these categories, then you would not have to file a tax report to pay the tax. The exemptions are:
- Any public or government entities that include regional and federal offices, divisions, departments, and other public institutions.
- Businesses that deal with the mining or extraction of natural resources in the UAE. These are already subjected to Emirate-level taxation.
- Any corporation or organization that works for social causes or charity. These entities must register with the Ministry of Finance as a charity or social organization.
- Any regulated or public entities that are dealing with the social benefits funds like retirement or pension planning.
- Real estate or other regulated investment funds like charitable organizations.
- Any companies in UAE fully owned by the government of UAE and listed with a ministry-level decision to receive the tax exemption.
Tax Payment, Tax Return Filing, and Tax Refunds Corporations have to prepare and submit one corporate tax return for each taxation period with all the important reports. However, in UAE the companies are not obliged to pay UAE corporate income tax in advance or to submit a provisional corporation tax return.
The businesses will be expected to file each tax return within 9 months to the Federal Tax Authority along with any supporting schedules. Taxpayers who would want to alleviate their corporate tax debt must do within 9 months of the period. If the businesses can assure that the UAE corporate tax can be due, then they can request the FTA for a tax refund. Requirement of Registration and Deregistration All those companies and entities falling under the cognizance CT in the UAE are expected to register with the Federal Tax Authority. If a business is eligible for the UAE corporate tax and neglects to register for the respective tax, then the Federal Tax Authority has the authority to enroll that specific eligible business. Liquidation and expiration can be the reasons to get ceased to be eligible for the UAE CT tax framework. The corporation can submit an application to get deregistration in such cases. Within 3 months of discontinuation, the company must have to submit an application for deregistration with the FTA. It is highly recommended to avail the help of a corporate tax advisor in UAE to ensure all the liabilities and possibilities to register for the CT. Reach out to ebs for Corporate Tax services in Dubai, UAE to get help with international standards services.