All about the New Corporate Tax Law in UAE

All about the New Corporate Tax Law in UAE

by Shivaanjan 24, May 2024

Taxation plays a crucial role in supporting the government's source of income. Paying taxes helps the government function and create initiatives to support entrepreneurs. The United Arab Emirates (UAE) is known for its friendly business environment and support for growing entrepreneurs. Given the country’s liberal taxation policies, it has attracted much foreign investment.

A recent development under Federal Decree-Law No. (47) mandated corporate tax in the UAE as of 2022. The Federal Tax Authority (FTA) introduced UAE corporate tax to establish the country’s stronghold as a leading commercial and business hub and expedite its economic development.

Let us look at and explore the recent developments and understand corporate income tax in the UAE.

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What is Corporate Tax?

In the UAE, corporations and other organisations must pay a direct tax on their net income or profits from their operations. This tax is known as Corporate Income Tax or Business Profit Tax in some jurisdictions.

Corporate Tax in UAE came into effect on June 1, 2023.

The corporate tax rate is levied at 9 percent on all taxable income up to AED 375,000.

Note: The March 2024 update mandates tax registration for various entities in the UAE. Let us look at the different tax registrations for business entities:

  • Resident legal persons established on or after March 1, 2024, must register within three months of business incorporation.
  • Foreign entities managed from the UAE have three months from the end of the financial year to register.
  • Existing non-resident legal persons having UAE permanent establishments have nine months to register, while those who have a nexus in the UAE can do so by June 1, 2024.
  • Non-resident entities established after March 1, 2024, must register within six months (permanent establishment) or three months (income nexus)
  • Natural persons conducting business in the UAE must register if their annual turnover exceeds AED 1 million by the 31st of March of the subsequent calendar year

The first deadline for tax registration is 31st May 2024. Non-compliance will incur a penalty of AED 10,000.

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Characteristics of Corporate Tax in UAE

Let us look at the principles of the UAE corporate tax law 2023 before you consider a business setup in UAE.

  • Corporate tax in the UAE does not apply to self-employed individuals. It only applies to business entities and commercial activities.
  • Corporate taxes are calculated after adjusting net profits as per IFRS accounting standards.
  • Freezones are also entitled to pay corporate taxes unless they qualify for the freezone corporate tax regime.
  • The federal corporate tax does not affect the Emirate level resource extraction. It remains under the jurisdiction of individual Emirates.
  • The new law states that withholding tax is exempted on both domestic and international payments as it helps attract more foreign investment.
  • Corporate tax in UAE can be removed from being exempted on capital gains and dividends from eligible shareholding.
  • Qualifying intragroup transactions and restructuring can be exempted from corporate tax if specific terms are met.
  • Foreign investors can claim foreign tax credits to prevent double taxation.
  • The new UAE corporate tax law allows you to carry forward tax losses and their utilisation against future taxable income.
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UAE Corporate Income Tax Exemption 2023

Let us look at ways where you will be exempted from paying corporate tax in the UAE as per the recently updated law.

The following persons shall be exempted from UAE corporate tax:

  • A government entity or a government-controlled entity.
  • A business engaged in an extractive business or a non-extractive natural resource business.
  • A qualifying public benefit entity.
  • A qualifying investment fund for a company.
  • A public pension, social security fund, or private pension is subject to regulatory oversight of the state's competent authority. They also need to meet other conditions that the Finance Minister may prescribe.
  •  A juridical person incorporated in the state that is wholly owned and controlled by an exempt person.
  • Any individual who opts for tax relief schemes like ’small business relief’ and ‘freezone corporate tax regime'.

Note: There are articles under this Decree-Law that provide specifications which must be met to qualify for the UAE corporate tax exemption.

Understanding legalities and staying updated with new regulations in the Middle East is important. Commitbiz has experts who can guide you through the process of filing for corporate tax in UAE and avail efficient tax exemption.

We are the industry leaders due to our large base of happy clientele and would love to help you achieve success. Contact us today!

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