In the UAE, corporate tax is imposed on the net profits earned by companies operating across the country. It is a form of direct tax levied on the taxable income of a taxable person for a tax period, i.e., a financial year. Also referred to as ‘business profits tax’, corporate tax came into force from 1 June 2023. This was in accordance with the rules set forth in Federal Decree-Law No. 47 of 2022. Taxable Persons are required to file a corporate tax return for each tax period within 9 months from the end of the relevant tax period. The same deadline would generally apply for the payment of any corporate tax due in respect of the tax period for which a return is filed.
Here, we take a look at all the information related to corporate tax in UAE and understand the key elements such as tax rates, scope, and benefits. We aim to provide insights on the UAE tax system and help you understand it better.
Rate of Corporate Tax in UAE
The UAE Ministry of Finance first announced its plans to implement Corporate Tax on the taxable income of businesses across the country in January 2022. Applicable across all seven Emirates, the corporate tax in UAE is applicable as per the following rates:
Sl No. | Taxable Income under UAE CT Law | Tax Rate (in percent) |
1. | Taxable income up to AED 375,000 | NIL |
2. | Taxable income above AED 375,000 | 9 percent |
Read this blog to understand more about the UAE CT Law.
Eligibility and Scope of Corporate Tax
Corporate tax is applicable to all companies and commercial activities conducted across the seven Emirates of the UAE. Refer to the following points to learn more about the different groups that fall under it.
Corporate Tax in UAE is applicable for:
- All the UAE-based or UAE-managed juridical persons and companies.
- Non-resident juridical persons and entities that have a permanent establishment in the UAE.
- Foreign juridical persons that have a ‘nexus’ in the country through income from immovable property.
- Non-residents whose source of income is in the UAE i.e. State sourced income.
- Natural persons conducting business in the UAE with an annual turnover exceeding AED 1,000,000 gregorian calendar year
Corporate Tax in UAE is not applicable for:
a) A Government Entity
b) A Government Controlled Entity
c) A Person engaged in an Extractive Business, (Oil and Gas exploration , mining, petrochemical plants)
d) A Person engaged in a Non-Extractive Natural Resource Business
e) A Qualifying Public Benefit Entity. Examples (religious, charitable, educational)
f) A Qualifying Investment Fund. (REIT, hedge funds, listed by DFSA, ADGM)
g) A public or private pension or social security fund that is subject to regulatory oversight of the competent authority
Corporate Tax Compliance Through Financial Accuracy and Documentation
To navigate corporate tax in UAE, businesses must follow the required financial practices and comply with regulatory requirements. Elements such as bookkeeping and accounting, audit obligations, and transfer pricing rules play a crucial role in ensuring your tax readiness. Refer to the following points to learn about key compliance areas for companies to meet corporate tax obligations.
Bookkeeping and Record Maintenance in UAE
All businesses are required to maintain records for seven years after the end of each tax period. These records should be easy to access and ready for review by the FTA. Commitbiz experts can help you set up proper bookkeeping in Dubai and the broader UAE, ensuring full compliance.
Accounting Standards for UAE Businesses
The UAE tax law requires businesses to follow the accrual accounting method. Our experts can ensure that it is calibrated correctly and aligns with regulatory expectations. The type of accounting standard depends on your company’s annual turnover:
- Cash basis if turnover is less than AED 3 million
- International Financial Reporting Standards (IFRS) for SMEs if the turnover is under AED 50 million
- Full IFRS if the turnover is AED 50 million or above
Audit Requirements for UAE Businesses
As per the UAE corporate tax law, companies must prepare audited financial statements if they are registered as a Qualifying Free Zone Person or earn more than AED 50 million annually. At Commitbiz, we work with approved auditors in the UAE to help include audit processes in your corporate tax compliance plan.
Tax Reporting Currency in the UAE
It is mandatory for all businesses to calculate and file their taxes in AED. Companies carrying out their operations in a different currency must convert the amounts through the UAE Central Bank exchange rates.
Transfer Pricing in the UAE
If your business has high revenue or is associated with international parties, you must follow transfer pricing rules in UAE. It is advisable to use the Arm’s Length Principle. You need to keep proper records if:
- Your UAE company’s turnover is over AED 200 million
- Multinational group entities global turnover is over AED 3.15 billion
Commitbiz offers full transfer pricing compliance solutions and also helps with compliance conversions to minimize discrepancies during reporting.
Understanding Free Zone Persons Under UAE Corporate Tax
The Federal Tax Authority (FTA) is responsible for the regulation and enforcement of corporate tax in UAE. As per the guidelines issued by the FTA, a free zone person is considered a ‘juridical person’. These are entities such as corporations and international organisations established, incorporated, or registered in a UAE free zone.
The benefit of a freezone to be a qualified free zone is to have 0% corporate tax and if the free zone satisfies the di minimis requirement then the non-qualified income too is not taxed.The qualified free zone also has to satisfy below requirements to claim 0% tax.
- Have adequate substance in a free zone
- Earn a certain qualifying income
- Have audited financial statements
- Maintain proper transfer pricing documentation
- Non-qualifying revenue must not exceed AED 5 million or 5 percent of total revenue
Which are the Qualifying Business Activities for Free Zone Corporate Tax?
A qualifying free zone person can leverage the benefits of no corporate tax if the source of income comes from specific ‘qualifying’ business activities across different industries. The activities include:
- Manufacturing of goods or materials
- Processing of goods or materials
- Holding of shares and other securities
- Ownership, management and operation of Ships
- Reinsurance services are subject to the regulatory competent authority in the UAE
- Fund management services are subject to the regulatory oversight by the relevant competent authority in the UAE
- Wealth and investment management services are subject to the regulatory oversight by the relevant competent authority in the UAE
- Headquarter services to related parties
- Treasury and financial services to related parties
- Financing and leasing aircraft, including engines and rotable components
- Distribution of goods and materials in or from a designated zone to a customer that resells such goods or materials, or parts thereof or processes or alters such goods or materials or parts thereof for the purpose of sale or resale
- Logistics services
- Any ancillary activities (which serve no independent function) to the above activities
Benefits of Corporate Tax in UAE
Through the introduction of corporate tax in UAE, the government planned to strengthen its position as a major business and investment hub. Read the following points to understand the key benefits of corporate tax:
- Helps maintain financial transparency
- Prevents illegal tax practices
- Attracts foreign investors across different sectors
- Promotes fair competition in the market
- Aligns with global tax standards
How Commitbiz LLC can Help?
Commitbiz LLC, a leading corporate service provider in the UAE, specialises in offering a wide range of business services. Our team of experienced tax experts can provide customised tax solutions to meet your specific business needs. Having expertise in guiding businesses of all sizes through every stage of corporate tax filing, we can help with evaluating the taxability status, identifying the tax period and completing the registration process accurately. We ensure that the company complies with the local tax rules and FTA regulations and make the process easy and hassle-free. Our aim is to safeguard you from all the potential threats related to tax. Reach out to us today!
Is filing a Corporate Tax return mandatory for all UAE companies?
Yes, all taxable UAE entities must file a corporate tax return within 9 months of their financial year-end.
What are the penalties for corporate tax non-compliance in the UAE?
An administrative penalty of AED 10,000 is applicable if you fail to comply with the FTA corporate tax filing rules.
What is Withholding Tax (WHT), and does it apply in the UAE?
Withholding Tax is a tax on payments to non-residents. In the UAE, it is not levied currently but may apply to certain income in the future.
When is Corporate Tax deregistration required in the UAE?
Deregistration is required when a company ceases operations, undergoes liquidation or dissolution, or changes its legal structure, provided all tax dues are settled.
What is small business relief under corporate tax?
It is the relief available for businesses with annual revenue below AED 3 million which allows them to be treated as having no taxable income, which reduces compliance requirements.
Do UAE branches need separate Corporate Tax registration?
No, UAE branches are considered part of the parent company, so only one corporate tax registration is needed.
Does Commitbiz help with corporate tax compliance?
Yes, tax experts of commitbiz assist with corporate tax registration, tax planning, return filing, documentation, audit support, and overall compliance to ensure the business meets all FTA requirements.
How does corporate tax apply if a natural person has multiple business activities?
In the case of multiple taxable activities, a single corporate tax return must be filed covering all the business activities.
Which types of income are excluded from taxation?
As per corporate tax law, dividends from UAE-resident entities, foreign permanent establishment profits, gains covered under the participation exemption, and international shipping revenue are excluded.
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