Corporate Tax Consulting Services
The Ministry of Finance has announced the introduction of a 9% federal corporate tax in UAE on business profits with a threshold of AED 375,000. This comes into effect from the financial year beginning 1st June 2023.
The corporate tax in UAE will be payable on the net profits of UAE businesses as reported in their financial statements prepared in accordance with IFRS.
On January 31-2022, the UAE announced the implementation of a federal corporation tax slated to affect companies with financial periods starting on or after June 1, 2023. The UAE signed an agreement with the Organisation for Economic Co-operation and Development (OECD), committing to regional discussions about the implementation of tax treaties and the production of an official Arabic version of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention.
The UAE’s Corporate Tax system follows international best practices and the guidelines set by the OECD, making the obligation of tax compliance easy for businesses.
Application of Corporate Tax in UAE
The UAE Corporation Tax applies to all commercial activities carried out within the seven emirates of the UAE. However, certain exceptions apply:
Natural resources are exploited by mining companies.
Individuals who receive income in their capacity are not subject to corporate tax since it is not deemed a business or commercial activity.
In a free trade zone, companies must comply with all legal requirements. They can apply a 0% corporate tax rate for income earned from a business activity outside of the UAE or within other free zones.
Governments and government-owned companies are exempt from corporate tax.
In addition, charities and public benefit organizations will also be exempt (upon approval and discretion of the Ministry)
Investment funds and Real Estate Investment Trusts may apply to the Federal Tax Authority (FTA) to be exempt from UAE Corporate Tax if certain conditions are met.
The Goals of the New Corporate Tax in UAE
Putting the UAE on the map as a global hub for international business and investment. Keeping taxes simple and avoiding unpleasant tax consequences.
Implementing the UAE’s strategy to help accelerate its development and transformation. Encouraging accountability and enforcing best tax practices.
Enforcement Date of Corporate Tax in UAE
Corporate Tax will become effective in fiscal years beginning on or after June 1, 2023. Businesses adopting a fiscal year ending May 31, 2024, will be subject to corporate tax.
The first tax returns will be filed in 2024. Corporations with fiscal years starting on January 1, 2023, and ending on December 31, 2023, will be subject to corporate tax.
Rate of Corporate Taxation
The following rates apply to corporations:
Up to AED 375,000 there is no tax.
The tax rate on taxable income over AED 375,000 is 9%.
Untaxed Income
The following are exempt from corporate tax:
Salary or income is not subject to the new Corporate Tax; however, it is subject to company tax if the payment was derived from freelancing activities.
The UAE allows investors to invest in real estate without any business license as long as they do not hold a license to trade.
A bank account or savings plan offers an individual the opportunity to earn interest or other revenue.
In cases where the conditions are met, intra-group transactions and reorganizations will not be subject to UAE Corporate Tax.
U.A.E. Corporate Tax is not generally levied on dividends, capital gains, interest, royalties, and other investment returns unless they are generated through business/commercial activity.
Free Trade Zone
Shortly, the United Arab Emirates government plans to continue providing special tax breaks to those companies in the Free Trade Zones. To take advantage of these perks, these businesses must meet the given conditions. Additionally, some formalities are involved in the tax return as well.
Business units located in a free zone on the mainland with regular business operations will be subject to mainland taxes.
For some companies operating in a free zone, they may be subject to the same UAE corporate tax.
The only form of taxation in the UAE is corporate taxes. No individual taxation will take place in the UAE.
If a Free Zone Business operates within the zone or outside of the UAE, then the tax benefits will apply.
If the Free Zone Business operates within the UAE mainland, then the standard tax treatment will apply.
Documentation Requirements
The business is required to maintain financial and other records to comply with the Corporate Tax return and other documents submitted to the FTA. Additionally, any exempted individual will have to keep records to allow the FTA to verify their exemption status.
Laws and regulations will determine whether financial statements need to be independently audited by an accredited firm, however, Free Zone Persons are required to submit audited financial statements to apply for the UAE Corporate Tax regime.
Relevant Authority?
The Federal Tax Authority will be responsible for the administration, collection, and enforcement of UAE Corporate Tax.
The Ministry of Finance will remain the ‘competent authority for purposes of bilateral/multilateral agreements and the international exchange of information for tax purposes.
Key Areas of Practice for Our Tax Advisors
It is a pleasure to provide complete tax services with high quality and focus on the client only a good team can deliver.
The skills and attention to client needs are only provided by a few companies, it is therefore of the utmost importance to us that you select a support team that understands your business and its needs.
As well to the areas listed above, our tax advisors assist clients in the following fields as well:
1- Advise on Group Corporate Tax and how to minimize potential risks
2- Any problems with the Tax returns
3- Tax Penalties
4- Disputes about valuations
5- Corporate Tax Registration
6- Corporate Tax De-registration
7- Corporate Tax Review and Filing
8- Corporate Tax Refund