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UAE Corporate Tax – Is it a boon or a bane?

UAE corporate tax Details

Did you know people of the UAE do not have to pay any income tax? Did you know UAE will introduce corporate tax only by June 2023? Did you know that UAE does not have any income tax for those working there, regardless of their residency status? Are you still wondering why people are migrating to the United Arab Emirates? The reasons are many, but today we will detail the most recent development within their tax system – the UAE corporate tax.

Corporate Tax in the UAE

Corporate tax is a direct tax applied on an organization’s or other business’s net revenue or profit. It is also commonly referred to as corporate income tax. India implemented income tax back in 1961, while the United Arab Emirates has yet to implement this tax in their country.

So why are they enforcing the federal corporate tax now? As we all know the UAE has always been very systematic and strategic in their growth. Their decisions and implementations all have strong, future oriented reasons. For the longest time UAE had been confined within the traditional image of an oil – lubricated economy.

Well, it’s more than partly true because UAE earned most of their revenue from this fossil fuel. But with changing times UAE is slowly trying to unleash themselves from that position and find other ways to generate their revenue. Not only that, they are also bringing about changes to align themselves with the global community and the newest addition of corporate tax is one step forward to the future. 

UAE Corporate Tax Rate

The 9% corporate tax to be implemented by June 1st 2023, will bring about additional revenue to the country’s economy and keep small businesses and individuals in mind. In no way does this tax come as a burden to the country’s people. Companies now have to maintain their accounts according to the international framework of the report, bringing about helping the businesses uplift themselves to an international standard.

Businesses with profits up to an income of AED 375000 will be charged a 0% corporate tax. That means that only companies with an overall profit higher than AED 375000 can pay the 9% corporate income tax. This threshold point is, in fact, very beneficial for startups. Large MNCs have to pay a slightly higher percentage of corporate tax when compared to other businesses. According to the latest information, the sum remains at 15% for companies. Dubai – the critical business hub, will have one of the lowest corporate taxes globally because the global corporate tax stands at a 15% today. 

UAE Corporate tax rate

Main Features of UAE Corporate Tax

The corporate income tax will be applicable for all businesses except those that extract natural resources because they are already subject to taxation at the Emirates level. Another highlight of this tax is that any individual salary member will be exempted from paying the corporate tax. Individuals earning income from dividends, capital gains, shareholding ownerships or security etc., will also not be applicable to pay the corporate tax. But individuals holding a business license or permit to carry out commercial, industrial and professional activities come under the category of taxpayers. It also includes earnings made by freelance professionals for work done under a freelancing licence or permit.

Foreign investors who do not carry out businesses in the UAE will not have to pay corporate tax, but businesses functioning in the UAE of foreign investors are subject to the UAE corporate tax. Those part of a group of companies can file their tax returns as one instead of individual taxes. They can do so by taking a tax group registration. The corporate income tax will also be applied to banking operations in the United Arab Emirates.

Those companies operating in the free zone area will not have to pay the corporate tax, but if they are associated with businesses on the mainland and have activities and transactions together, they are subjected to the payment of this tax. Companies that operate in both areas with a dual license scheme will be affected the most in this case. This will lead to shifting companies from the mainland to the free zone areas to avail of tax benefits. 

The tax returns have to be filed only once year and to make it easier for people, it can be done online. This tax is calculated based on adjusted profits, that is adjusting the profit of a business after exemptions and so on. Another interesting aspect of the corporate tax is that; it allows businesses to show their losses incurred to reduce the percentage of tax to be paid for the following financial period(s). 

So for all those who are planning to start a business in the UAE or already have one, the implementation and understanding of corporate tax is extremely useful and beneficial. While this latest addition of corporate tax in the UAE demands companies and business to pay a fixed sum of their profit, the rules and regulations of corporate income tax are made keeping in mind the benefits individuals and companies will receive from it. Hence this tax is definitely a boon for all the businesses looking to thrive in the international market. 

Finprov is on the lookout and search for further information and updates about UAE’s latest corporate income tax. Just like how UAE keeps in mind their people, Finprov aims to make things easier for you by providing information at your fingertips. Answers to your queries are only a touch away. 

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