Key Corporate Tax Considerations for Small Business
CT Tax Rate for Small Businesses
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 AED 375,000.
Impact on Small Business
The new UAE Corporation Tax will require a change in mindset for the tax and finance department of any business. Moving forward, transactions and book entries will need to be undertaken with Corporation Tax in mind.
It will be of utmost importance for small businesses in the UAE to follow tax technology best practices, followed stringently in other countries already. This includes e-audits, e-compliance, e-assessments, and e-invoicing. Not only will these elements need implementation, but they also need to be robust enough to be changed as the Federal Tax Authority updates its requirements.
Businesses Based in Freezones
Free zone Businesses will be subject to UAE Corporation tax, however the Federal Tax Authority will continue to honour the tax incentives in place by the various Freezone authorities. This is because many have historically offered tax fee incentives for 20 years when forming a company there.
This however is not applicable to those trading on the mainland and calculating the correct tax would need to be done accurately with the appropriate documentation. Businesses would still be required to file a Corporate tax return even if they are based in a freezone.
Corporate Tax Credit on Losses
Companies would be able to offset losses against profits thereby not being penalised for loss making periods and therefore supporting businesses in the UAE.
This would be applicable subject to strict requirements of claiming back the loss which would require appropriate documentation.
With holding Tax
Other tax regimes in the GCC have Withholding tax (WHT) rules on payments outside the country. It seems that there would not be any WHT due on dividends, interest, royalties and other similar payments in the UAE
WHT is the tax collected at source by the payer on behalf of the recipient of the income.
Corporate Tax Registration
It is expected that all companies would need to register for Corporation Tax in the UAE.
Corporate Tax Submission
Corporate Tax filing is expected to be submission once a year and is based on the financial year of the business. It is also expected to be filed electronically.
Penalties and Fines
There is an expectation of late registration and late submission penalties levied on companies for non-compliance. Similar rules to the VAT law whereby late payment penalties are likely to be included also.
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.