The tax system in the UAE gives surprises to the residents from income tax to Value Added Tax. The best fact about the UAE is that there is no federal income tax which can be an advantage for the people who run a business in UAE. However, with many fiscal advantages in UAE, people should not think they can be scot-free from tax yet. UAE has introduced a new tax law which is known as Corporate Tax Law which is going to be implemented from 1 June 2023.
The Ministry of Finance on 31 January 2022 announced that a new corporate tax system would implement in the UAE. The UAE corporate tax would impose the lowest tax rate of 9% levied for the taxable person to pay.
Any corporation that has a fiscal year starting on 1 June 2023 and ending on 31 May 2024, would be eligible for UAE corporate tax starting 1 June 2023. The tax returns filing would be due towards the end of 2024 for such companies.
Any company that has a calendar year starting from 1 January 2023 and ending 31 December 2023, would be levied corporate tax starting from 1 January 2023 and corporate tax return filing would be due in mid-2025.
Scope And Rate Of The UAE Corporate Tax
The UAE federal tax system is applicable to all commercial activities and businesses operating within seven emirates including the foreign banking sector. However, businesses operating in the extraction of natural resources are subjected to tax decrees issued by the specific emirate.
Those who are earning income in their personal capacity such as investment income, salary as long as the income does not require a commercial license. All the businesses that are registered in free zones and comply with all the regulatory requirements are also exempt.
All those businesses that have annual taxable profits under AED 375,000 would be subject to a 0% rate. All those businesses that have annual taxable profit above AED 375,000 would be subject to a 9% rate. All multinational enterprises that fall under Pilar Two of the base erosion of OECD would be subject to different corporate tax rules as per the OECD’s BEPS rules.
Federal Taxes In The UAE
The UAE does not levy any tax on income and there is no need for income tax returns in the UAE as there is no individual tax applicable within the country. This also applies to freelancers and self-employed people who are UAE residents. Those employees who are GCC nationals in the UAE are subject to a social security regime of 17.5%. non-GCC nationals are subject to social security in the UAE.
The UAE has also expanded its Bilateral Investments Treaties (BIT) and Double Taxation Agreement network to encourage strategic global partnership. There is a transfer charge applied to the transfer of the property in the UAE. This transfer tax varies in the Emirates such as it is 4% in Dubai, UAE.
There is a free-trade zone in the UAE that have special import regimes, tax, and customs. There are more than 40 zones throughout the Emirates and companies can be exempt from paying corporate tax for up to 50 years.
As VAT rate of the UAE is 5% whereas certain items are excluded from the VAT such as protective equipment used in the COVID-19 pandemic, export goods outside the GCC, investment-grade precious metals, international transportation, and some educational and health services.
Corporate Tax Law Released By UAE Ministry Of Finance
The UAE corporate tax law will be effective from 1 June 2023 with a tax rate of 9%. This regime includes features representing best taxation practices for international market standards. However, there are several exemptions available for businesses where corporate tax is not levied. Such as free zone persons can continue to maintain their 0% tax position subject to meeting certain conditions.
On 9 December 2022, the UAE Ministry of Finance release Federal Decree-Law No.47 of 2022 on the taxation of corporations and businesses to implement a new corporate tax regime in the UAE.
Generally, UAE corporate tax will apply to both residents and nonresident persons. A resident person will include a juridical person established in the UAE, and outside of the UAE as well as a natural person that conducts business activity in the UAE.
Non-resident person can be subject to UAE corporate tax if it has a permanent establishment in the UAE and derives UAE-sourced income or has a UAE nexus.
Exemptions
- Under certain conditions, the following persons will be exempt from CT:
- Government entities
- Qualifying public benefit entities
- A person engaged in the exploitation of the UAE natural resources
- Charities and public benefit organizations
- Qualifying investment funs
- Pension or social security funds
Conclusions
Corporate tax in UAE will be effective from 1 June 2023 and companies will have to pay their corporate tax returns during the tax period. Federal Tax Authority will be responsible for the collection, administration, and enforcement of the UAE corporate tax. Taxable persons can pre-register the corporate tax now as FTA is providing more guides and references for corporate tax registration and filing as well. It is apparent that UAE has taken a great step to imply corporate tax in the UAE to make its market more competitive and to fulfill international taxation standards. If you are an established company in the UAE and eligible for corporate tax, then you must start preparing for UAE corporate tax. You can also get consultancy about the UAE corporate tax from the ebs experienced team.
If you are having your business in the UAE then it is important to know if you are qualifying free zone or not, if you are then there will be 0% corporate tax. ebs is providing assistance to determine your eligibility for UAE corporate tax. Our expert team will help you to know about your business position and taxation criteria in UAE. We also provide many services such as accounting and bookkeeping, auditing services, accounting secondment, CFO services, and many more.
If you are having any problems regarding corporate tax, then our tax experts are always ready to assist you and give you the best legal advice.
Feel free to contact us and have a detailed discussion about corporate tax and its registration process without tax experts.