Overview of Corporate Tax in UAE

anurag

    • Introduction-Corporate Tax in UAE

    Federal Law-Law No. 47 of 2022 on Taxation of Corporations and Businesses (the “Corporate Income Tax Law”) was signed on October 3, 2022, and published in the Official Gazette of the United Arab Emirates (“UAE”), No. 737. on October 10, 2022.

    The Corporate Tax Law provides the legislative basis for the imposition of federal tax on corporations and business profits (“Corporate Income Tax”) in the United Arab Emirates. It contains 20 chapters and 70 articles which cover, among other things, the scope of corporate tax, its application and rules relating to the compliance and administration of the corporate tax regime.

    The introduction of corporate income tax is intended to help the UAE achieve its strategic goals and accelerate its development and transformation. The certainty of a competitive corporate tax regime that adheres to international standards, together with the UAE’s extensive network of double taxation treaties, will cement the UAE’s position as a leading jurisdiction for business and investment.

    Given the UAE’s position as an international business hub and global financial center, the UAE corporate tax regime is based on global best practices and incorporates principles that are internationally known and recognized. This ensures that the UAE corporate tax regime is easy to understand, and its implications are clear.

    Imposition of Corporate Tax

    Article 2 provides that corporate income tax is imposed on taxable income earned by a taxable person in a tax period.

    Corporation tax would normally be levied annually, with the corporation tax liability calculated by the taxable person on a self-assessment basis. This means that the calculation and payment of corporation tax is done through the filing of a corporation tax return by the taxable person, followed by the payment of any amount due to the authority.

    Effective Date of Corporate Income Tax

    Corporation tax will apply for financial years starting on or after 1 June 2023.

    Any company that adopts a fiscal year beginning on 1 June 2023 and ending on 31 May 2024 will be subject to CT from 1 June 2023. The first tax return filing is likely to be due in late 2024.

    Any company that adopts a calendar year beginning on 1 January 2023 and ending on 31 December 2023 will be subject to CT from 1 January 2024 and the filing is likely to be due in mid-2025.

    Who is Subject to Corporation Tax?

    a) UAE companies and other legal entities that are incorporated or effectively managed and controlled in the UAE
    b) Non-resident legal entities (foreign legal entities) that have a permanent establishment in the UAE
    c) Individuals (individuals) who carry on a trade or business activity (excluding turnover derived from wages, personal investment income and real estate investment income) in the United Arab Emirates as specified in a government decision to be issued in due course; and
    d) Businesses or business activities run by residents or non-residents of the United Arab Emirates are only subject to corporation tax if they generate more than AED 1,000,000 (one million United Arab Emirates dirhams) in revenue in a calendar year.

    Corporate Income Tax Rate:

    The corporate income tax rate is as follows:

    • 0% of taxable income up to and including AED 375,000; and
    • 9% of taxable income above AED 375,000.

    Relief for Small Businesses

    Article 21 offers help to start-ups and other small or microbusinesses by lowering their compliance expenses and company tax burden.

    A resident taxable person can opt for small business relief, which results in them being treated as if they do not receive any taxable income under the following conditions according to Ministerial Decision No. 73 of 2023:

    • Revenues for the applicable tax period and previous tax periods do not exceed AED 3,000,000
    • The threshold limit above applies to tax periods beginning on or after 1 June 2023 and will continue to apply only until 31 December 2026
    • A permanent resident electing small business relief must not be a qualified person in a free zone
    • Resident A person electing Small Business Aid must not be a founding company of a multinational group of companies as defined in Cabinet Decision 44.

    Persons exempt from corporate income tax.

    The following categories of persons are exempt from corporate income tax.

    a) Government entities of the UAE
    b) Entities controlled by the UAE government.
    c) Persons engaged in mining activities in the UAE.
    d) Persons engaged in non-extractive natural resource business in the United Arab Emirates
    e) Authorized public benefit entities.
    f) Qualified investment funds
    g) Pension funds or social security funds
    h) A legal entity incorporated in a state that is wholly owned and controlled by certain exempt persons.
    i) Any other person who may be designated by the Government in a decision on the proposal of the Minister.

    How Aristotle Tax Consultancy can help businesses

    Aristotle Tax Consultancy is a leading tax consultancy firm in the Dubai, UAE. We have a team of experienced tax professionals who can help businesses to understand and comply with the UAE CT. We can provide the following services:

    Corporate Tax Registration: Aristotle can help in applying for corporate tax registration for business entities.   

    Tax Planning and tax efficient structure: We can help businesses to help in proper tax planning within legal purview and advising the best corporate structure from tax perspective.

    Tax compliance: We can help businesses to file annual tax returns, and to comply with other CT requirements.

    Tax Advisory and Opinion: We can advise and give expert opinion on corporate tax matters.

    Tax representation: We can represent businesses in front of tax authorities

    Aristotle Tax Consultancy is devoted to giving its patrons the best possible service. We are always up-to-date on the latest tax developments and we are passionate about helping businesses to achieve their tax goals. If you need any support in Corporate Tax, please feel free to contact us to discuss your specific needs.