Corporate Tax comes to UAE – Summary
The newly implemented UAE Corporate Tax will now apply to all businesses in the Emirates, with the exceptions of mining industries and any work involving extraction of natural resources, which would still remain subject to Emirate level corporate taxation. All foreign entities and individuals likewise shall be subject to Corporate Tax if they conduct trade or businesses in the UAE region in an ongoing or regular basis.
The UAE Corporate Tax will apply equally to all categories of profits and other (net) income sources reported in the financial statements and annual audits prepared at par with global accounting standards.
A tax rate of 0% is applicable for taxable income up to Dh375,000 to support small businesses and startups
And a 9% corporate tax rate is implemented for taxable income exceeding Dh375,000.
Objective of introducing Dubai Corporate Tax
Strong holding UAE’s position as a global leading hub for business and investments
Enjoining international standards for tax transparency to prevent tax malpractices
Accelerating the UAE’s development and transformation to achieve its global strategic objectives
In terms of the diversification drive the UAE corporate tax is a milestone that’s been making headlines with the new UAE corporate tax being lowest in GCC.
And the newly implemented Corporate Tax comes with its own set of perks and benefits alongside- Tax credits and incentives.
The 12 key corporate tax benefits you must know:
- The United Arab Emirates has numerous FTZs or free trade zones that offer tax holidays or a 0% corporate and personal income tax rate for companies and individuals likewise. Some FTZs offer an exemption from customs duties and VAT (for movement/supply of goods when meeting certain criterions).
- Free trade zones (FTZs) Currently, there are over 35 FTZs (and business parks) in the United Arab Emirates alone, having their own regulations. All businesses (and their employees) established in FTZs are generally eligible for (renewable) 15 to 50 tax year holidays. Certain FTZs also offer exemptions from customs duties. However the laws and regulations granting these tax holidays and exemptions are not consistent across the various FTZs. Each FTZ therefore needs to be considered individually for its perks and benefits.
- Individuals are not subject to corporate tax from their employment, real estate, investment in shares or other personal income that’s not related to a UAE trade or business.
- No corporate tax apply on foreign investors who do not carry on businesses in the UAE
- Corporate tax will apply only on the adjusted accounting net profit of the business in question.
- Free zone businesses meeting all necessary requirements continue to benefit from corporate tax incentives.
- The extraction of natural resources will still remain subject to Emirate level corporate taxation
- No withholding taxes will apply on capital gains and dividends received by a UAE business from qualified shareholdings
- No corporate tax will apply on qualified intragroup transactions and restructuring
- Foreign tax will be allowed to be credited against the UAE corporate tax payable.
- Generous loss transfer utilization rule will be accessible to businesses.
- Charities and other public benefit organizations that are listed in a cabinet decision including all public and regulated private social security and retirement pension funds are exempted.
Conclusively
All financial statements should be prepped using accounting standards and protocols acceptable in the UAE, and all businesses must use their financial accounting period as their (annual) tax period. When a business does not have a financial accounting period, their default tax period will be considered as the Gregorian calendar year.
Sources: Federal Tax Authority and PWC
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