The UAE corporate tax regime is the talk of the town in corporate tax in UAE and its implications for businesses. At the same time, many businesses and entrepreneurs might assume that losses exempt them from the registration process. That is not quite the case for the small businesses in the UAE. This blog will discuss the corporate tax requirements for small businesses in UAE.
According to the Gulf News article, the SME owners for corporate tax registration can wait until their profits approach the Dh 375,000 profit mark which is wrong. So, Let’s discuss in detail the corporate tax regime and the small businesses requirements.
Introduction to UAE corporate tax
According to the Federal Decree-Law No.47 of 2022 on taxation of businesses and corporations, businesses will become subject to UAE corporate tax. They will be subject to corporate tax from the beginning of their first financial year starting on or after 1 June 2023.
Corporate tax is a direct tax levied on the profit and net income of corporations and other entities from their business.
Here are the corporate tax rates in UAE:
- 0 percent for taxable income up to AED 375,000
- 9 percent for taxable income above AED 375,000 and
- A different tax rate (not yet specified) for large multinationals that meet specific criteria. This specific criteria is set with reference to ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting Project.
Objective of corporate tax in UAE
Here are the objectives to introduce the UAE corporate tax
- Cements its position as a global hub for investment and business.
- Accelerate its transformation and development to achieve its strategic objectives.
- Reaffirm its commitment to meeting international standards for preventing illegal tax practices.
Scope of the Corporate tax in UAE
UAE corporate tax will apply to:
- Free zone businesses (The UAE CT regime will continue its incentives for free zone businesses).
- All individuals and businesses conduct business activities under a commercial license in UAE.
- Foreign entities and individuals only if they conduct business or trade in the UAE in a regular manner.
- Businesses engaged in real estate management, development, construction, and brokerage activities.
- Banking operations.
Exemptions from UAE corporate tax
Here are the rules regarding exemptions from the corporate tax:
Capital gains and dividends earned by a UAE business from its qualifying shareholding will be exempt from the corporate tax.
Businesses engaged in the extraction of natural resources are exempt from corporate tax as these businesses will remain subject to Emirate-level corporate taxation.
Reorganizations and qualifying intra-group transactions will be exempt from the corporate tax if the provided necessary conditions are met.
Corporate tax and small businesses
The profit threshold for corporate tax is AED 375,000. Some small businesses think that they have to wait until they reach this profit for corporate tax registration. However, it is a completely wrong perspective because the registration process for corporate tax has been open since June 2023.
Whether you are a startup or a small business, UAE mandates corporate tax registration for all businesses operating within its borders. If your annual income falls below the AED 375,000 threshold for tax calculation, registration remains compulsory.
This might seem tough to understand but here is the logical explanation for corporate tax registration in UAE for even small businesses. The registration process helps to establish your business presence in the system. It facilitates transparency and future compliance. It helps to understand financial activities even if a small business is currently at a loss. Also, it further ensures that you have access to the benefits and the tax incentives that become relevant to your business.
Registration process for small businesses in UAE
Gather your documents
Prepare your passport copies, trade license, financial statements, and other relevant paperwork.
Choose your tax registration platform
You can register online through the Federal Tax Authority website or visit any authorized tax authority center.
Complete the registration form
Be accurate and comprehensive when filling out the form.
Receive your Tax Registration Number (TRN)
This unique identifier will be crucial for all future tax-related activities.
Small business relief
There is a small business relief for the business in UAE which is a great initiative for small businesses. Moreover, businesses have to prove their eligibility and must submit their tax returns and necessary records. If the businesses don’t meet the AED 375,00 profit level, eligible taxable persons can elect for the small business relief on their tax return. Once they complete simplified tax return then they can benefit from the relief.
The business revenue must be below or equal to AED 3 million for all previous and latest tax periods. Also, when the revenue exceeds the business will no longer be able to elect for the relief package.
Conclusion
Navigating the UAE corporate tax landscape might seem daunting for small businesses with losses. However, remember, registration is not optional! It’s your ladder to future compliance, transparency, and potential benefits. ebs is one of the best accounting and bookkeeping companies in UAE. We provide the best accounting services in UAE. Moreover, we provide guidance about the UAE corporate tax regime. We have assisted many businesses to stay compliant with the corporate tax. Embrace the change, register proactively, and watch your small business thrive under the evolving UAE tax system. Our services include 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
My small business makes under the tax threshold. Do I still need to register for UAE corporate tax?
Yes! Registration is mandatory for all businesses operating in the UAE, regardless of current profit or loss. Registering now facilitates compliance and provides potential benefits when your business grows.
Do I have to pay corporate tax if I’m operating in a UAE free zone?
While free zone businesses benefit from ongoing incentives, they’re still subject to the new corporate tax regime. You can consult your free zone authority for specific implications and potential exemptions.
I’m worried about filing tax returns. Is there any help for small businesses?
Yes! The UAE offers a small business relief option with a simplified tax return for eligible businesses below AED 3 million annual revenue. Consider talking to a tax advisor such as ebs to see if you qualify and navigate the process smoothly.