Corporation Tax Introduction
All businesses and individuals conducting business activities under a commercial license in the UAE will be subject to Corporation Tax.
The UAE Corporation Tax also extends to businesses engaged in:
- Real Estate Management
- Consulting Services
- E-commerce and digital companies
- F&B businesses
Determining the amount of Corporation Tax is due on Profits
The taxable profit subject to corporation tax will be calculated from the accounting net profit of a business after making deduction for certain items as per Corporate Tax law.
The acceptable accounting net profit of a business is normally reported in the audited financial statements prepared according to IFRS (International Financial Reporting Standards).
Free Zones and Corporation Tax
Businesses operating in Free Zones will be subject to UAE Corporation Tax, but the UAE Corporation Tax regime will continue to apply incentives offered to free zone businesses (providing they comply with the regulatory requirements and do not conduct business with mainland UAE).
Entities operating in Free Zones will be subject to a 0% CT rate on their taxable income. If an entity located in a Free Zone derives non-passive income from mainland UAE all its income will be subject to the general CT regime.
Passive income can be loosely defined as income that continues to be earned after some initial work, and that requires little-to-no daily effort to maintain.
Other Exemptions
Businesses engaged in the extraction of natural resources are exempt from Corporation Tax as these businesses will remain subject to the current Emirate level of Corporate Taxation.
Dividends and Capital Gains earned by a UAE business from its qualifying shareholdings will be exempt from Corporation Tax.
A list of other exemptions
- Interest and other income earned by an individual from bank deposits or saving schemes.
- A foreign investor’s income earned from dividends, capital gains, interest, royalties and other investment returns.
- Investment in real estate by individuals in their personal capacity.
- Dividends, capital gains and other income earned by individuals from owning shares or other securities in their personal capacity.
Individual Taxation
An individual will be required to pay UAE Corporation Tax if they hold a business license or permit. Holding a license or permit for business operation purposes places the individual’s money-making activities on an equal level to licensed businesses. If the individual is not required to have a business license or permit, then the activity is not considered a business.
If an individual operates as a legal entity then the activities they are engaged in will be considered the operations of a business. Activity such as trading assets, real estate, stocks, and cryptocurrency – would be considered a business activity and thus subject to UAE Corporation Tax.
Key Highlights on UAE Corporation Tax
- UAE Corporation tax rate one of the lowest within the GCC region and along major economies
- Tax applicable on profits above AED 375,000 and not below that
- Standard Corporate Tax Rate is 9%
- CT effective from 1 July 2023 from financial year 2023 ending on 30 June 2024
- The financial year for businesses starting 1 January 2023 and ending 31 December 2023 will become subject to the tax beginning from 1 January 2024
- Tax incentives offered to freezone businesses complying with all regulatory requirements will remain
- Capital gains and dividends received by the companies in UAE from their qualifying shareholdings are also exempt from paying CT.
Corporation Tax - FAQ
Corporate Tax (CT) is a direct tax levied on the net income or profit of corporations and other businesses.
Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions. Most countries have a comprehensive CT regime, including most of the GCC Member States.
0% for taxable income up to AED 375,000
9% for taxable income above AED 375,000
There is also a different tax rate for large multinationals that meet specific criteria set with reference to ‘Pillar Two’ of the OECD’s (Organisation for Economic Cooperation and Development’s) Base Erosion and Profit Shifting project.
Corporation tax is effective from 1st of June 2023 and it is expected that filing and payment deadlines will be 9 months after the financial year end.
Companies operating in Free Zones will be subject to UAE Corporation Tax, but the UAE Corporation Tax regime will continue to apply incentives offered to free zone businesses (providing they comply with the regulatory requirements and do not conduct business with mainland UAE).
Entities operating in Free Zones will be subject to a 0% CT rate on their taxable income. If an entity located in a Free Zone derives non-passive income from mainland UAE all its income will be subject to the general CT regime.
Under the upcoming UAE Corporation Tax regime, foreign companies will be subject to the corporate tax rate of 9% on annual taxable income exceeding AED 375,000.
To qualify for the 9% annual tax rate a foreign company operating in UAE has
Their Permanent Establishment (PE); or
Their Place of Effective Management; or
Their source of income.
On the 1st of June 2023, the corporate tax rate will be 9% of the net profit made by businesses in the AUE. In order to support small businesses and start-ups, the corporate tax rate will be ‘0’ % if the net profit is up to 3,75,000 AED.
The best way to prepare for the new Corporation Tax is to have accounting software which covers all the necessary requirements. The best accounting software for businesses currently is QuickBooks Accounting software.
On the 1st of June 2023, the corporate tax rate will be 9% of the net profit made by businesses in the UAE. In order to support small businesses and start-ups, the corporate tax rate will be ‘0’ % if the net profit is up to AED 375,000.
