Corporate Tax in UAE
What is Corporate Tax in UAE? The initiation of Corporate Tax is set to take effect from June 1, 2023, with a standardized rate of 9% applicable to businesses earning above AED 375,000. The UAE corporate tax law incorporates world-class taxation practices aimed at fostering the nation’s economic growth, aiding businesses in meeting global standards, and curbing illicit tax practices.
Since its proclamation, the announcement has stirred considerable interest among businesses and tax professionals. With this development, the UAE is poised to become the fourth among the GCC countries to implement a federal corporate tax.
The introduction of federal corporate tax in UAE is geared towards fortifying the country’s standing as a global business and investment hub, expediting strategic objectives for development and transformation. Additionally, the corporate tax framework aligns with international standards for tax transparency, steering clear of detrimental tax practices.
Given the novelty of corporate tax in UAE, it becomes imperative for businesses to grasp the concept. We endeavor to address common questions you might have about corporate tax.
Corporate Tax on Free Zones in UAE
Free Zone companies and Qualifying Free Zone Persons can benefit from a special 0% Corporate Tax rate on their “Qualifying Income in UAE.” However, should Free Zone businesses fall under the CT regulations for Free Zones, they may be subject to the 9% corporate tax rate.
Top 7 Questions Answered:
1. What is Corporate Tax in UAE?
Corporate tax, also known as Corporate Income Tax or Business Profits Tax, is a direct tax levied on the net income or profit of corporations and business entities. It requires companies to pay a percentage of their profit as tax.
2. Who Should Pay Corporate Tax in the UAE?
Businesses with a taxable net profit exceeding AED 375,000 fall under the purview of corporate tax, necessitating the payment of a percentage of their net profit as tax.
3. What is the Corporate Tax Rate in the UAE?
The corporate tax rate is 9% of the net profit for businesses. Small businesses and start-ups benefit from a 0% rate if the net profit is up to AED 375,000.
4. When is Corporate Tax Implemented in the UAE?
The implementation date for corporate tax is effective from the financial year starting on or after June 1, 2023.
5. When will the corporate tax law be released by the authorities?
The corporate tax law was officially unveiled by the authorities on December 9, 2020. The UAE corporate tax details are accessible via ‘Federal Decree-Law no. 47 of 2022,’ and you can obtain a copy from the official website of the Ministry of Finance. For a downloadable version of the UAE corporate tax law, visit the Ministry of Finance website.
6. What are the businesses or incomes that are outside the scope of corporate tax?
With a profit threshold of 375,000 AED, businesses surpassing this limit are obligated to pay corporate tax. However, certain types of businesses or income enjoy exemptions from corporate tax. Here is a list of entities or income that are exempt:
1. Individuals are not subject to corporate tax, meaning income from employment, real estate, investments in shares, and other personal income unrelated to a trade or business in the UAE will be exempt from corporate tax.
2. Foreign investors who do not conduct business in the UAE are not applicable for corporate tax.
3. Corporate tax incentives are extended to free zone businesses that adhere to all regulatory requirements.
4. Capital gains and dividends received by UAE businesses from qualifying shareholdings are exempt from corporate tax.
5. The corporate tax does not apply to qualifying intragroup transactions and restructurings.
7. How is corporate tax in UAE calculated?
The calculation of corporate tax in the UAE involves a 9% levy on the net profit presented in the company’s financial statements. This 9% corporate tax is applicable only when the taxable net profit surpasses 375,000 AED. In simpler terms, the net profit up to 375,000 AED incurs a tax rate of 0%.
For instance, if the net profit amounts to 475,000 AED, the corporate tax will be 9,000 AED (475,000 – 375,000 x 9/100).
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