Corporate Tax in the UAE

Key aspects of UAE Federal Corporate Tax

The introduction of federal corporate tax in the UAE is part of its strategy to align with international tax standards. This tax applies to business profits exceeding a set threshold and aims to diversify the country’s revenue sources. The tax rate is 9%, making it one of the most competitive in the world.

Who is subject to the corporate tax in the UAE?

Corporate tax applies to companies operating on the UAE mainland, including subsidiaries of foreign firms. Corporate tax UAE regulations also affect free zone companies, which may qualify for exemptions if they meet specific conditions. Natural persons conducting business activities and earning significant revenue must pay tax if their income exceeds the set threshold.

Corporate tax rates in the UAE

Mainland companies:

Companies registered on the UAE mainland are subject to a 9% corporate tax rate on net profits exceeding AED 375,000. Earnings below this threshold are not taxed, supporting the growth of small businesses.

Free zone companies:

Companies registered in free zones can benefit from corporate tax exemptions if they comply with certain requirements and derive most of their income from outside the UAE. However, income from mainland transactions may be subject to the 9% rate.

Small Business Relief:

Businesses with annual revenue below AED 375,000 are exempt from corporate tax. This measure supports startups and small enterprises, promoting economic growth and innovation.

Natural persons conducting business activities

Individuals engaged in freelance or business activities under a business license must pay corporate tax if their annual income exceeds AED 375,000.

Who is exempt from corporate tax?

Entities involved in the extraction of natural resources are exempt from federal corporate tax, as they are subject to emirate-level taxation. Other exemptions include government bodies, public benefit organizations, and qualifying investment funds.

Which incomes are not subject to corporate tax?

Dividends, capital gains, and certain types of income from qualifying shareholdings are generally not subject to corporate tax. Additionally, income earned by free zone companies from activities outside the UAE may also be exempt if specific conditions are met.

Conclusion

The UAE's corporate tax system offers a competitive environment with low rates and clear regulations, encouraging both local and foreign investments. The government provides several exemptions and incentives, making it easier for businesses to operate efficiently while contributing to the national economy.

Key facts:

• Corporate tax rate: 9% for taxable income over AED 375,000.
• Small business relief applies to revenue below AED 375,000.
• Free zone companies may qualify for exemptions under certain conditions.
• Businesses must comply with local accounting and tax reporting regulations.

Get Corporate tax accounting support today

Understanding the complexities of corporate tax in the UAE can be challenging. Seeking professional assistance ensures compliance with local regulations and maximizes the benefits of available exemptions. Experienced consultants can help with tax filing, accounting, and strategic tax planning.

Do offshore companies have to pay corporate tax?

Offshore companies registered in the UAE are not subject to corporate tax, as they are not permitted to conduct business within the UAE. However, they must adhere to regulations in their home jurisdictions.

Is it mandatory to keep accounting records and submit financial statements in the UAE?

Yes, all businesses subject to corporate tax must maintain accurate accounting records and submit financial statements. Proper record-keeping is essential for compliance and transparency.

Do companies have to file tax returns?

Yes, companies must file annual corporate tax returns. Failing to do so can result in penalties and other legal consequences. The tax return should be submitted electronically through the designated government portal.

If a company pays VAT, does it also have to pay corporate tax?

Yes, VAT and corporate tax are separate forms of taxation. A company that pays VAT is still subject to corporate tax if its net income exceeds the AED 375,000 threshold.

Can companies offset losses against profits?

Companies in the UAE can carry forward losses to offset future taxable profits, allowing them to reduce their tax liability over time. This provision helps businesses manage fluctuations in income.

Will companies within a group of companies pay tax separately?

Group companies can form a tax group, allowing them to file a consolidated tax return. This can help offset losses within the group and streamline the tax filing process.

Tax for Multiple Business Activities

No, natural persons conducting multiple business activities under a single license will be taxed on their combined income. This means that if different types of business activities are registered under the same license, the total income from these activities will be assessed together for tax purposes. However, if a person holds separate licenses for different businesses, each will be considered separately, and individual tax assessments may apply. It is essential to consult with a tax advisor to understand how this may impact overall tax obligations and whether consolidating or separating activities under different licenses would be more beneficial.

What is transfer pricing in the UAE?

Transfer pricing refers to the rules governing transactions between related entities within a multinational company. The UAE adheres to international guidelines to prevent profit shifting and tax avoidance, ensuring that transactions are conducted at market value.