Dubai, UAE – The United Arab Emirates (UAE) implemented the Corporate Tax Law in December 2022, marking a significant milestone in the country’s fiscal landscape. With its implementation set for June 1, 2023, this new legislation will have far-reaching implications for businesses operating in the UAE. The Corporate Tax Law aims to diversify revenue sources, enhance economic stability, and foster a competitive business environment in the country.
Here’s everything you should know about Corporate Tax in the UAE.
What is Corporate Tax?
It is a type of tax that companies and businesses have to pay on their profits. It is also known as Corporate Income Tax or Business Profits Tax in some countries.
Why UAE is levying it?
For years, the UAE was considered a tax-free country but to follow the global minimum effective tax rate under the OECD Pillar Two of the Base Erosion and Profit Shifting (BEPS) Project, the UAE announced levying of Corporate Tax on business profits at the rate 9 percent.
Who is subject to Corporate Tax in UAE?
Corporate Tax applies to different types of entities or individuals in the UAE.
Who is exempt?
Certain businesses or organizations are exempt from Corporate Tax in the UAE due to their significance and contributions to the country’s society and economy. These entities, known as Exempt Persons, include:
Government Entities: Various government bodies are exempt from Corporate Tax.
Government Controlled Entities: Entities controlled by the government and specified in a Cabinet Decision may also be exempt.
Extractive Businesses: Businesses involved in the extraction of natural resources, such as oil, gas, or minerals, may be exempt from Corporate Tax.
Non-Extractive Natural Resource Businesses: Businesses related to non-extractive natural resources, like agriculture or forestry, may also be exempt.
In addition to being exempt from Corporate Tax, these entities may also be relieved from certain registration, filing, and compliance obligations unless they engage in activities that fall under the scope of Corporate Tax.
How much income is taxable income and how it can be calculated?
In the United Arab Emirates (UAE), the corporate tax is calculated at a rate of 9 percent based on the net profit shown in the company’s financial statements. However, the 9 percent corporate tax is only levied if the taxable net profit exceeds AED 375,000 ($102,110). Any net profit up to AED 375,000 is taxed at 0%.
Will entities in the UAE that are owned by GCC or UAE citizens pay tax?
The tax applies to entities that fall within the income threshold of AED 375,000. The law does not differentiate between nationality or residence, so it applies to any entity irrespective of the citizenship or residence of the founders or owners.
Will entities pay other taxes as well?
According to the Ministry of Finance, some businesses may still be subject to both the corporate tax and “Emirate level taxation”. Emirate level taxes paid will not be credited against or otherwise reduce the amount of corporate tax payable.
Will the corporate tax replace VAT?
The value-added tax (VAT) is a different type of tax. It will continue to be collected in the UAE. If an entity is mandated to pay VAT and corporate tax, it will have to pay the taxes separately. Those that are not VAT registered may still be subject to pay corporate tax.
What about excise tax, will it be replaced by corporate tax?
An excise tax is a legislated tax on specific goods or services at the time they are bought. The excise tax will continue to be collected in the UAE.
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