Corporate Tax UAE: Everything You Need to Know in 2024

Before beginning a business in the UAE you need to understand the country’s corporate tax system properly. UAE introduced corporate tax for keeping companies to keep up with global standards and also for avoiding any surprises down the line. 

So here we are breaking down corporate tax UAE for your better understanding. If you are a well established company or building a new one this complete guide will help you plan better and avoid any penalties. 

What Is Corporate Tax In The UAE?

In 2022, the UAE Ministry of Finance introduced a Federal Corporate Tax for the first time. The corporate tax is set at 9% on business profits exceeding AED 375,000. This rate remains quite low compared to other countries, ensuring that the UAE’s corporate tax remains highly competitive.

The corporate income tax is a direct tax levied on the net income of corporations and other entities. 

These corporate taxes mainly focus on the earnings a business generates after deducting operating costs, salaries, and other expenses. UAE has mainly introduced this corporate tax to diversify the economy and align itself with global taxation standards. In June 2023, this corporate tax UAE became applicable to all businesses in the UAE, a shift from the previous tax-free environment the country was known for. 

UAE corporate tax is important for business in many ways, 

• Global tax practices: The introduction of UAE’s global taxes will help them enhance the transparency and credibility of the UAE as an international business hub. In this way, they can attract more foreign investment. 

• Compliance: for all the business understanding and adhering to corporate tax UAE laws is important. Non-compliance typically leads to penalties, audits and other reputational damages and staying with a compliant business can operate smoothly without interruptions.

• Financial planning: all companies always go for long-term financial planning. so corporate tax forces businesses to reevaluate their financial strategies better. 

• Free Zones and Exemptions: Businesses operating in free zones remain largely exempt from corporate tax, making these areas highly appealing to international companies. However, free zone businesses need to meet specific conditions to maintain their tax-free status, ensuring they contribute to the UAE’s economy in meaningful ways.

Also Read: How To Choose The Best Audit Firms in Dubai – UAE

Who Should Register for Corporate Tax in UAE?

Any business entity, whether operating on the mainland or in a free zone, should register for corporate tax in UAE. Even if a company qualifies for exemptions or relief, it must still go through the registration process to ensure compliance with the UAE’s tax laws. The registration ensures that the business is recognized by the authorities and is properly categorized based on its income and activities. Under certain conditions and thresholds, natural persons may also be required to register for corporate tax. There may also be situations where non-resident juridical persons would need to register for UAE corporate tax if prescribed conditions are met. 

Who is Exempted from the Corporate Tax in the UAE? 

There are some categories that are exempted from the Corporate Tax UAE as follows, subject to certain conditions: 

• UAE corporate tax does not apply to any government departments, authorities, or other public institutions.
• Companies that are controlled by the UAE government and carry out specific activities are also exempt from these corporate taxes. 
• Organizations that are established for charities, non-profits or other educational institutions can be exempt from the UAE corporate tax.
• Mutual funds and alternative investment funds that are regulated by the UAE may qualify for corporate tax exemptions.
• The UAE does not impose corporate tax UAE on oil and gas companies.

Also Read: The Three Golden Rules of Accounting

Effects of Corporate Tax on UAE Businesses

A number of changes have been made to business policies and the overall environment in the UAE since the introduction of corporate tax:

Impact on Business Operations and Profits

With corporate tax, all businesses will need to adjust their operations to account for these new tax regulations. This means higher operational costs, more financial planning, and other paperwork. The UAE’s corporate tax rate is still quite low compared to other countries, so many businesses should be able to adapt without significant financial strain.

Attraction for Foreign Investment

UAE has been a magnet for foreign investors due to its tax-free benefits, great location, and infrastructure. Now that there’s a corporate tax, some might wonder if that attractiveness will drop, but the UAE remains highly appealing with its low tax rate and numerous free zones offering tax incentives.

Impact on Small and Medium Enterprises

Small enterprises might feel the impact of corporate tax a bit more than larger companies. The UAE government set up certain exemptions or reduced rates for businesses that don’t meet a certain profit threshold.

Impact on Free Zone Businesses

Free zones in the UAE have long been attractive to companies because they offer perks like 100% foreign ownership and tax breaks. At the same time, free zone businesses may still benefit from some of these advantages, so some businesses may reconsider whether operating in free zones or mainland UAE is more cost-effective.

Government Revenue and Public Services

By collecting corporate tax, the government will have more funds to invest in key public services like infrastructure, healthcare, and education. This can have a positive effect, improving the overall quality of life in the country and making it an even better place to do business.

Corporate Behavior and Strategic Adjustments

Businesses will likely start making strategic adjustments to minimize their tax burden. This could involve restructuring, finding ways to qualify for deductions, or investing in more tax-efficient operations. Corporate tax UAE will become a part of the decision-making process for businesses. It leads them to seek out opportunities for cost savings in other areas. 

Also Read : Documents Required for VAT Registration UAE

Required Documentation for Corporate Tax Registration UAE

Here’s a checklist of the key documents and information required for successful corporate tax registration in the UAE,

• Trade License: You need a copy of your company’s valid UAE trade license.
• Owner/Shareholder Information: Personal identification details and proof of identity (e.g., passport copies) for all owners and shareholders.
• Business Activity Information: An overview of the nature of your business, its legal structure, and the activities you perform.
• Authorised signatory details: personal identification details, proof of identity (e.g., passport copies) and proof of authorisation  (e.g. power of attorney, MoA) for the authorised signatory

Also Read: What is ICV Certificate in Dubai-UAE and How to Get It?

How To Calculate Corporate Tax In UAE

Here’s what the Ministry of Finance says about corporate tax UAE rates,

• 0% – to taxable income up to AED 375,000
• 9% – to taxable income above AED 375,000
• Keep in mind that large multinationals may have different rates in the future (Global minimum tax) depending on certain criteria.

First, you need to prepare the books of accounts according to the International Financial Reporting Standards, which are acclaimed by the UAE authorities for corporate tax purposes. 

You need to remember that 9% is charged only if the taxable profit crosses AED 375,000. So up to AED 375,000 is 0%.

Here is how you can calculate the corporate tax under the 9% corporate tax in UAE

In the case of an income of AED 600,000, the corporate tax would be calculated as follows:

(600,000 – 375,000) * 9% = AED 20,250. 

Also Read: Business Setup in Dubai: The Ultimate Guide to Company Formation in UAE

Conclusion

In summary, understanding business taxes in the UAE is essential for business. To ensure you are compliant, it is recommended that you learn all the necessary guidance, from how to register with tax companies to the documents required for annual returns.

Seek advice from a professional tax advisor. This is where Kreston Menon, one of the best tax advisor in the UAE, can play a key role. Whether it’s helping you register with tax companies or ensuring your returns are accurate, they will advise you on every issue. With their in-depth knowledge of UAE tax laws, you will be sure that your business is fully compliant and avoids any obstacles.

FAQ