- November 21, 2023
- Posted by: Shuraa Tax Consultant
- Category: Corporate Tax
The United Arab Emirates (UAE), a nation renowned for its dynamic economy and strategic business environment, has recently embarked on a new chapter in its fiscal policy with the introduction of corporate tax in UAE.
This decision, effective from June 1, 2023, marks a significant shift in the country’s tax landscape, bringing it in line with international standards and positioning it as an even more attractive destination for global businesses.
For businesses operating in the UAE, understanding the UAE corporate tax regime is essential for ensuring compliance and minimizing tax liabilities. The corporate tax rates, taxable profits, exemptions, deductions, credits, filing procedures, and penalties are all critical aspects that businesses must be well-versed in.
Therefore, to learn more about how UAE corporate tax will be implemented, continue reading.
What is Corporate Tax?
A corporate tax, also known as a corporation tax or company tax, is a direct tax levied on the income or capital of corporations and other similar legal entities. The tax is usually imposed at the national level, but it may also be imposed at state or local levels in some countries.
How Corporate Tax Works
Companies are required to file corporate tax returns with the government on a regular basis, typically annually. The tax return will calculate the company’s taxable income, which is the company’s total income minus certain deductions and allowances. The company’s taxable income is then multiplied by the corporate tax rate to determine the amount of tax owed.
The introduction of corporate tax in UAE is expected to have a significant impact on the country’s business environment. It is anticipated to attract foreign investment, enhance the UAE’s competitiveness, and promote economic diversification.
Businesses that adapt to the new tax regime and leverage its potential are well-positioned to thrive in the UAE’s dynamic business environment.
Corporate Tax Regime in the UAE 2023
The UAE introduced a federal corporate tax regime in 2023, effective from financial years starting on or after June 1, 2023. The corporate tax regime is designed to be competitive and aligned with international best practices.
The Ministry of Finance will remain as the competent authority for the purposes of bilateral/multilateral agreements as well as the international exchange of information for tax purposes. The administration, collection, and enforcement of CT in the UAE will fall under the jurisdiction of the Federal Tax Authority.
Key Features of the UAE Corporate Tax System
- The standard corporate tax in UAE rate is set at 9%, with a zero-rate applicable to taxable profits below AED 375,000.
- Taxable profits are calculated based on accounting principles generally accepted in the UAE (UAE GAAP) and International Financial Reporting Standards (IFRS). Certain income, such as dividends and capital gains, is exempt from corporate tax.
- Various deductions and credits available, such as those for direct and indirect business expenditures, research and development for business.
- Businesses are required to file corporate tax returns and pay tax on an annual basis.
For any business financial year which start on or after the 1st of June 2023 will be subject to corporate tax the very same year. For example, if a company’s financial year starts on 1st August 2023 and ends on 31st July 2024, it will be subject to corporate tax from August 2023. This is because it would be the first financial year for the company after the CT regime.
On the other hand, if for instance a business’ financial year starts on 1st February 2023, it will only become subject to corporate tax the following year, i.e., 1st Feb 2024 to 31st Jan 2025.
Exemptions for Corporate Tax Regime in the UAE
- The UAE corporate tax regime, introduced in 2023, provides exemptions for certain types of businesses and income. This includes:
- UAE Government entities (such as local government entities, ministries, departments, and authorities)
- Extractive businesses (such as extraction of natural resources including oil, gas, and minerals)
- Qualifying public benefit entities
- Qualifying investment funds, as defined in the UAE Corporate Tax Law, are exempt from corporate tax.
- Free zone businesses will be subject to the CT regime. However, there will be a consideration for the incentives currently being offered to free zone businesses as long as they comply with all the regulatory requirements.
- A business established in free zone jurisdictions will need to register and file corporate tax returns.
Impact of Corporate Tax on UAE’s Business Environment
The introduction of corporate tax in Dubai and UAE is expected to have a significant impact on the country’s business landscape. It is anticipated to:
1. Attract foreign investment
The UAE corporate tax rate and transparent tax regime are expected to attract foreign businesses to invest in the country.
2. Increased competitiveness
The UAE’s CT regime is designed to be aligned with international best practices, which will enhance the country’s competitiveness in the global market.
3. Promote economic diversification
The introduction of CT is expected to encourage businesses to diversify their operations and invest in new sectors, which will contribute to the UAE’s economic growth and development.
Get Expert Taxation Guidance with Shuraa Tax
While the UAE’s corporate tax regime is designed to be competitive and supportive of business growth, there might be numerous complexities that businesses need to be aware of.
Additionally, staying informed about the latest developments in the UAE’s tax system is crucial, as the government may introduce new regulations or amend existing ones to further refine the tax system.
Therefore, the services of our experts at Shuraa Tax are specifically catered to provide you with the best solutions for your financial needs.
Part of the Shuraa Group, it is one of the transcending companies when it comes to account and taxation services. It comes as no surprise that it has stamped its presence globally considering the team’s expertise.
Shuraa Tax can provide tailored guidance, help business reducing the complexities of the UAE’s tax system, and ensure they are well-positioned to minimize their tax liabilities and maximize their financial success.