The UAE stands out for its welcoming business atmosphere and tax perks. It offers a distinctive take on corporate taxation that has unique features. Let's explore what corporate tax means in the UAE and who needs to pay it.
What is Corporate Tax in UAE?
Corporate Tax is a levy imposed on the profits of companies operating within a jurisdiction. In the UAE, Corporate Tax is imposed at the federal level. Each emirate has its regulations and procedures for implementation. It rolled up on 1 June 2023.
According to the UAE government’s statement, “introducing a Corporate Tax regime also reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices.” It allows the UAE to spit out the "money laundering list".
According to the UAE government’s statement, “introducing a Corporate Tax regime also reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices.” It allows the UAE to spit out the "money laundering list".
What is the Corporate Tax Rate in the UAE?
In the United Arab Emirates, the standard Corporate Tax rate is 9% of companies' net profits
However, there is a 0% tax rate for companies with a net income of up to AED 375,000. Anything over that is taxed at 9%.
Thus, many small and medium enterprises and businesses fall into the tax exemption list. Read on to find out if you fall into one of these categories!.
However, there is a 0% tax rate for companies with a net income of up to AED 375,000. Anything over that is taxed at 9%.
Thus, many small and medium enterprises and businesses fall into the tax exemption list. Read on to find out if you fall into one of these categories!.
Should I Pay Corp Tax?
To determine if you are liable for corporate tax in the UAE, overview the table with tax categories:
Who Can Avoid Corporate Tax?
The UAE offers a range of tax incentives and exemptions to attract foreign investment and foster economic growth. As such, many businesses and types of income are outside the scope of corporate tax. These include:
- Small and Medium Enterprises: Companies with an annual taxable profit of less than 375,000 AED, benefit from a 0% corporate tax rate.
- Free Zone Entities: Companies operating in free zones often receive full exemption from corporate taxes, typically up to 50 years.
- Entities Engaged in Certain Industries: Many sectors, such as tourism, hospitality, and retail, are not subject to corporate tax in the UAE.
- Capital Gains: There are no specific provisions for capital gains under the UAE's corporate taxes (CT) law
Corporate Taxes in Free Zones
Free zone entities may be subject to corporate tax in the following cases:
Out-of-Rule Activities
Entities may be subject to corporate taxes if they conduct business activities outside the rules of their free zone.
External Core Income-Generating Activities
If companies conduct their main income-generating activities outside of the free zone.
Physical Presence Requirement
Companies might have to pay corporate taxes if they have branches outside of a free zone. Also, it applies if they carry out important activities or keep valuable resources outside.
Qualified Personnel Requirement
If entities have enough skilled staff outside a free zone to carry out business activities.
Out-of-Rule Activities
Entities may be subject to corporate taxes if they conduct business activities outside the rules of their free zone.
External Core Income-Generating Activities
If companies conduct their main income-generating activities outside of the free zone.
Physical Presence Requirement
Companies might have to pay corporate taxes if they have branches outside of a free zone. Also, it applies if they carry out important activities or keep valuable resources outside.
Qualified Personnel Requirement
If entities have enough skilled staff outside a free zone to carry out business activities.
How is Corporate Tax in UAE Calculated?
Corporate taxes use a simple method based on net income generated by companies. Here's a detailed overview of the corporate tax calculation process in the UAE:
Taxable Income
The UAE's corporate tax is based on a company's net profit, after deducting all applicable expenses. The tax rate is 9% for this type of income.
Deductions
Companies can deduct costs necessary for conducting business. These deductions are limited by the General Interest Deduction Limitation Rule.
Progressive Rate System
When planning your taxes, it is important to remember that there may be a progressive tax at the emirate level in addition to the corporate tax. This tax can be as high as 55%.
Understanding these nuances is critical to compliance and tax strategy optimization. Consulting with qualified professionals helps your company adapt to the specifics of the UAE's economy.
In moving.ae, we provide comprehensive tax compliance services. This includes one-on-one or chat consultations on corporate and personal taxes, VAT (Value Added Tax), double taxation, and other specific tax cases.
In moving.ae, we provide comprehensive tax compliance services. This includes one-on-one or chat consultations on corporate and personal taxes, VAT (Value Added Tax), double taxation, and other specific tax cases.
