1. What is corporate tax in UAE?
Corporate tax is a form of direct tax levied on the net income or profit of corporations and other business entities. It is also commonly known as ‘Corporate Income Tax’ or Business Profits Tax.’
In simple words, it is a tax levied on the net profit made by the businesses. It requires companies to pay a certain percentage of profit as tax.
2. What is the rate of corporate tax in the UAE?
The corporate tax rate is at 9% of the net profit made by the businesses. In order extent support to small businesses and start-ups, the corporate tax rate will be ‘0’ % if the net profit is up to 3,75,000 AED
3. What is the date of implementing the federal corporate tax in UAE?
The date of implementing the corporate tax is effective from the financial year starting on or after 1st June, 2023.
4. When will the corporate tax law be released by the authorities?
The authorities already released the corporate tax law on 9th December 2020. The UAE corporate tax is made available through a ‘Federal Decree-Law no. 47 of 2022 on their official website. To download the UAE corporate tax law, you can visit the Ministry of Finance website.
5. What are the businesses or incomes that are outside the scope of corporate tax?
Given the profit threshold of 3,75,000 AED, all businesses that exceed the threshold have to pay the corporate tax. However, certain types of business or income are exempt from corporate tax. Below is the list of companies or income exempt from corporate tax:
• Individuals will not be subject to corporate tax. As a result, any income from employment, real estate, investments in shares, and other personal income unrelated to a trade or business in the UAE will be exempt from corporate tax
• Not applicable to foreign investors who do not carry on business in UAE
• Corporate tax incentives are currently being offered to free zone businesses that comply with all regulatory requirements will continue.
• Capital gains and dividends received by UAE businesses from its qualifying shareholdings are exempt from corporate tax
• Not applicable on qualifying intragroup transactions and restructurings
6.How is corporate tax calculated?
Corporate taxes are calculated based on the company’s net income or taxable income. The net income is also called net profit or net earnings. You need to calculate all the income generated from all the revenue streams. The expenses, which include operating expenses, depreciation, amortization, interest on loans, and others, incurred by the company, also need to be calculated.
Corporate tax in UAE is calculated at 9% of the net profit shown in the company’s financial statements. The 9 % corporate tax will be levied only if the taxable net profit exceeds 375,000 AED. In other words, the net profit up to 3,75,000 AED is taxed at 0%.
For example, If the net profit is 4,75,000 AED, the corporate tax will be 9,000 AED (4,75,000-3,75,000 X 9/100)
7. What is needed for the new corporate tax?
The new corporate tax law suggests employing the accounting net profit position in the financial statements of businesses as the starting point for specifying the taxable income.
The business’ financial reports, financial statements, and accounting books will be the most important for such assessment.
8.What are the exceptions to the new corporate tax?
The UAE introduced a federal tax that is applicable to all businesses and commercial activities operating in the seven emirates. However, there are some exceptions like:
• Businesses that operate in the natural resources extraction industry will still be subjected to the tax decrees issued by the respective Emirate
• Businesses registered in Free Trade Zones are exempted given that they comply with all the regulatory requirements, and they don’t operate businesses with Mainland UAE
• Individuals’ income, unless the employment income comes from business/commercial/professional engagement, freelancing, or any other economic activities that must have a permit or must be licensed
• Individuals’ income from real estate investments, as long as these investments are done in a personal capacity and not as a business which requires a commercial license
• Individuals’ income, capital gains and dividends earned from personal investments in shares and securities
• Individuals’ income and interest gained from deposit and savings accounts
9.What are the objectives of the new corporate tax?
The objectives of the new corporate tax UAE are:
• To become a leading hub for business and investment in the world
• Drive development and transformation to attain its strategic objectives
• Reaffirm UAE’s commitment to fulfilling international standards for tax transparency and controlling harmful tax practices
10. How many different levels are in the corporate tax?
According to the Ministry of Finance, the new corporate tax rates are:
• For taxable income up to AED 375,000, it is 0 percent
• For taxable income above AED 375,000, it is 9 percent
• There will be a different tax rate for large multinationals that meet specific criteria assigned under the Pillar Two of the OECD Base Erosion and Profit Shifting Project
11. Who will be in charge of the new corporate tax?
The Federal Tax Authority (FTA) will be in charge of the administration, collection, and enforcement of the new corporate tax.
12.Will foreign companies or individuals have to pay the new corporate tax?
Foreign companies and individuals will be subjected to the new corporate tax in UAE as long as they run a business or conduct trade in the UAE in an ongoing or regular manner.
13.Will the income gained by a foreign investor come under the new corporate tax?
A foreign investor’s income gained from dividends, interest, royalties, capital gains, and other investment returns will not come under the new corporate tax.
14.What is the corporate tax rate applicable for entities established in a free zone?
Entities established in a free zone that meet the conditions will be classified as ‘Qualifying Free Zone Persons’ and will be subject to corporate tax at the following rates:
• 0% on qualifying Income
• 9% on taxable income that does not meet the qualifying income definition
15.What is a Tax Period?
Given corporate tax is imposed on an annual basis, it is necessary to specify the ‘Tax Period’. The Tax Period will normally be the Gregorian calendar year (i.e. from 1 January to 31 December) unless the business applies a different 12-month period for preparing its financial statements. For example, if your business follows a financial year starting from 1st April , then the tax period will be 1st April to 31st March.
16.Will I have to pay UAE CT alongside VAT in the UAE?
If you are a registered business for VAT, you will have to pay VAT and CT separately. If your business is not VAT registered, you may still have to pay federal corporate tax.
17. Will VAT paid be deductible for UAE Corporate tax?
Only irrecoverable input VAT may be deductible for CT purposes. Otherwise, VAT charged (sales) and incurred (purchases) would not impact the calculation of taxable income.
How to prepare for federal corporate tax in UAE?
Below are a few things to prepare your business for corporate tax:
• Understand the corporate tax using law and supporting information available on the Ministry of Finance and the Federal Tax Authority websites
• Assess the corporate obligation for your business, such as:
o Whether your business needs to register for UAE corporate tax
o What is the accounting / Tax Period for your business?
o By when your business needs to file a UAE corporate tax return
o What documents and applications should your business make for UAE corporate tax purposes
o How UAE CT may impact your business’ obligations and liabilities under contracts with customers and suppliers
o What financial information and records will your business need to keep for UAE corporate tax purposes?
• Keep yourself up to date by regularly checking the official website for latest information and guidelines.
Contact Global Tax Consultancy LLC for any assistance & services..