On 31st January 2022, the tax landscape in the United Arab Emirates (UAE) experienced a significant shift. The Ministry of Finance (MoF) announced the implementation of a new federal corporate tax system, effective from financial years commencing from 1st June 2023.

This blog aims to delve into the intricacies of the UAE corporate tax law while shedding light on its implications, exemptions, the overall impact on businesses and the applicable tax rate.

‍The Basics of UAE Corporate Tax:

The UAE Corporate Tax, also known as corporate income tax or business profit tax, is a direct tax imposed on the net income of corporations and businesses.

As per the new regulations, businesses are required to pay a 9% tax if their profits exceed Dh375,000. However, any taxable profits below this threshold will be exempt from tax, ensuring small businesses can flourish without additional financial burden.

‍Turnover Threshold:

To ensure fairness, the Ministry of Finance has established a turnover threshold for corporate tax. Business owners will only be subject to corporate tax if their annual turnover exceeds Dh1 million. This measure ensures that only significant business or business-related income is subject to taxation.

‍Who Does It Apply To?

The corporate tax regulations apply to specific entities known as "Taxable Persons." These include:

a) UAE Companies and Juridical Persons: Corporations and legal entities incorporated or effectively managed and controlled within the UAE fall under this category.

b) Natural Persons (Individuals) Conducting Business: Individuals engaged in business or business activities within the UAE, as specified by the Cabinet Decision, are subject to corporate tax.

c) Non-Resident Juridical Persons with Permanent Establishments: Foreign legal entities that have a permanent establishment within the UAE also fall under the purview of corporate tax.

Strategic Sector Exemptions

The UAE government provides several exemptions for businesses operating in strategic sectors. The following entities are exempt from corporate tax:

a) Government and Government-Controlled Entities: This category includes entities controlled by the government, ensuring their resources can be better utilised for public welfare.

b) Extractive and Non-Extractive Natural Resource Businesses: Businesses involved in natural resource extraction, as well as non-extractive sectors, enjoy exemption from corporate tax.

c) Qualifying Public Benefit Entities and Investment Funds: Public benefit entities, investment funds, public pension or social security funds, and private pension or social security funds are exempt from corporate tax.

d) Wholly Owned and Controlled Entities: If an entity is wholly owned and controlled by an exempt person, and its activities are ancillary to the exempt person, it qualifies for an exemption.

Benefits of UAE Corporate Tax

The UAE's corporate tax rate is one of the lowest in the world, making it an attractive destination for businesses. The implementation of corporate tax showcases the country's commitment to responsible financial practices, while still fostering an environment conducive to economic growth and entrepreneurship.

Registration and Filing Requirements

All taxable persons, including those in free zones, must register for corporate tax and obtain a registration number. Taxable persons are required to file a tax return for each tax period within 9 months from the end of the relevant period. The same deadline applies to the payment of any corporate tax due for the filed tax period.

This may seem daunting to you but we have a perfect solution to simplify the process and save your time and effort. Our Corporate Tax Registration Tool!

In just 5 minutes, you can complete your corporate tax registration with ease using any device and an internet connection. Our tool guarantees worry-free, up-to-date, and compliant registration, ensuring you stay on the right side of the UAE regulations. Get started today and take the first step towards financial responsibility and growth.

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