What is Corporate Tax? – All you need to know about corporate tax in UAE
According to the UAE Federal Decree-Law No. 47 of 2022 on taxation of corporations and businesses (the “Corporate Tax Law”), businesses will become subject to UAE Corporate Tax from the beginning of their first financial year that starts on or after 1 June 2023.
What is Corporate tax (CT)?
Corporate tax is a form of direct tax levied on the net income or profit of corporations and other entities from their business. The government imposes a corporate tax on businesses, and the amount of tax a business pays depends on a number of factors, including the size of the business, its profits, and the type of business.
Objectives of CT
By introducing the CT, the UAE aims to:
- cement its position as a leading global hub for business and investment
- accelerate its development and transformation to achieve its strategic objectives
- reaffirm its commitment to meeting international standards for tax transparency and preventing harmful tax practices.
Who is subject to Corporate Tax?
Broadly, Corporate Tax applies to the following “Taxable Persons”:
- UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE;
- Natural persons (individuals) who conduct a Business or Business Activity in the UAE as specified in a Cabinet Decision to be issued in due course; and
- Non-resident juridical persons (foreign legal entities) that have a Permanent Establishment in the UAE (which is explained under Section 8).
Who should pay corporate tax in the UAE?
All businesses with a taxable profit (net) of more than 375,000 AED are subject to corporate tax and must pay a set proportion of their net profit as corporate tax. UAE companies that are incorporated or managed and controlled in the UAE, as well as some entities in a free zone, fall under this category. To help small firms and start-ups, the corporate tax rate will be 0% if the net profit is less than 3,75,000 AED.
What income is exempt?
The Corporate Tax Law also exempts certain types of income from Corporate Tax. This means that a Taxable Persons will not be subject to Corporate Tax on such income and cannot claim a deduction for any related expenditure. Taxable Persons who earn exempt income will remain subject to Corporate Tax on their Taxable Income.
The main purpose of certain income being exempt from Corporate Tax is to prevent double taxation on certain types of income. Specifically, dividends and capital gains earned from domestic and foreign shareholdings will generally be exempt from Corporate Tax. Furthermore, a Resident Person can elect, subject to certain conditions, to not take into account income from a foreign Permanent Establishment for UAE Corporate Tax purposes.
How can businesses file for corporate taxes in the UAE?
Businesses in UAE are first required to get registered under the CT regime in UAE if they are eligible for it, and after getting registered, they may receive a corporation tax registration number from the said authority. The registered business may be required to file the return within the due date, which will be 9 months after the fiscal year end, as per the law.
How can Digits help you?
We have a team of experts based in UAE with local knowledge and GCC VAT and Corporate Tax experience. This is supported by a Professionally qualified industry experts which allows us to leverage off international best practices. Digits’ professional team has already started providing corporate tax consultancy services to its clients to enable them to make the required changes before hand and get ready to accept the new tax regime. Contact us right away to learn more about our various services. We will always bring our best people to support you.
