Understanding UAE Corporate Tax Laws

A direct tax on the profits or net income of the company or any corporation is called corporate tax. In various dominions, it is also known as business profit tax or corporate income tax. The UAE’s corporate tax regime coordinates firmly with international economic practices, promoting its integration with the global economy and also diversifying its state revenue. This introduction of corporate tax also acknowledges the UAE’s commitment to meeting international standards of tax transparency and forbidding harmful tax practices.

Overview of Corporate Tax in the UAE:

The corporate taxation system in the UAE is governed by federal decree law no. 60 of 2023 amending some provisions of federal decree law no. 49 of 2022 on the taxation of corporations and businesses. The following persons are subject to corporate tax in the UAE:

  • Juridical person incorporated in the UAE,
  • Foreign juridical persons that are effectively managed and controlled in the UAE,
  • The foreign juridical person that operates in the UAE through a permanent establishment or has a taxable nexus in the UAE,
  • Natural persons only if they are engaged in any business activities either directly or through unincorporated partnership or sole proprietorship.

The UAE corporate tax is a federal law and is applicable across all emirates. However, businesses engaged in the extraction of the UAE’s natural resources and in certain non-extractive activities will be outside the scope of the uae’s corporate tax subject to certain prerequisites. These businesses are subject to emirate-level taxation.

International agreements that are in force to which the UAE is a party are also considered under the UAE’s corporate tax regime. These agreements shall also include agreements for the avoidance of double taxation. The UAE has a double tax treaty ( DTTs) with several countries like Albania, India, Hong Kong, Russia, China, Japan, Saudi Arabia, Singapore and many other countries. One of the seven emirates in the UAE, Dubai has signed 92 treaties with nations around the world. As a result, residents and companies in the UAE avail of several tax benefits exemptions, and protection. Also because of these treaties, double taxation is prevented, promotes the exchange of goods, capital, and resources, and strengthens the economic relationships with other nations.

Tax Rates and Exemptions:

If a taxable person is a natural person or juridical person, the following tax rates are applicable:

  • 0% for taxable income up to and including AED 375,000
  • 9% for taxable income exceeding AED 375,000

If a taxable person is a qualifying free zone person, the following tax rates shall be applicable:

  • 0% on qualifying income
  • 9% on Taxable Income that is not Qualifying Income as specified in Cabinet Decision No. 55 of 2023.

The following Persons are automatically exempted from UAE Corporate Tax:

  • The UAE Federal and Emirate Governments and their departments, authorities and other public institutions;
  • Companies wholly owned and controlled by a Government Entity that carry out a Mandated Activity, and that are listed in a Cabinet Decision;
  • Businesses engaged in the extraction of UAE Natural Resources or related non-extractive activities that are subject to Emirate-level taxation, subject to meeting certain conditions; and
  • Qualifying Public Benefit Entities that are listed in Cabinet Decision No. 37 of 2023 or any subsequent relevant decisions 

The following Persons are exempted from UAE Corporate Tax upon approval of an application submitted to the Federal Tax Authority:

  • Qualifying Investment Funds that meet the prescribed conditions;
  • Public or private pension or social security funds that meet the conditions specified in Ministerial Decision No. 115 of 2023; and
  • UAE juridical persons that are wholly owned and controlled by certain exempted entities and undertaking activities specified in paragraph (h) of Clause 1 of Article 4 of the Corporate Tax Law.

SME Relief  which is applicable for Freezone and mainland

Small Business Relief releases certain businesses from the obligation to calculate and pay Corporate Tax and from having to comply with the regular Corporate Tax reporting requirements.

An eligible Taxable Person with Revenue of AED 3 million or below in the relevant Tax Period that ends on or before 31 December 2026 and prior Tax Periods Are assumed as having no Taxable Income in that Tax Period and will not have to calculate its Taxable Income or file a full Corporate Tax Return.

Any of the following UAE Resident Persons with Revenue of AED 3 million or below in the current and previous Tax Periods can claim Small Business Relief:

  • A natural person.
  • A legal entity that is neither:
    – a Constituent Company of a Multinational Enterprise Group as defined in Cabinet Decision No. 44 of 2020 that operates in more than one country and has a total consolidated group revenue of more than AED 3.15 billion in each financial period;
    – nor a Qualifying Free Zone Person.

Eligibility for Small Business Relief is based on the Taxable Person’s overall Revenue, irrespective of the number of Businesses or Business Activities carried out by the Taxable Person.

Tax Filing and Compliance:

All taxable persons are required to adhere to the International Financial Reporting System (IFRS). In case their revenue does not exceed AED 50,000,000; they are allowed to apply IFRS for small and medium enterprises (SMEs).

The procedure for filing corporate tax returns is as follows:

  1. Submit the required documents and information to the federal tax authority (FTA) for obtaining a corporate tax number.
  2. Documents and proper tax records and financial statements shall be maintained as per the uae’s corporate tax laws
  3. Calculate taxable income and prepare a tax return based on the records maintained, taking into account tax deductions and exemptions as per the UAE tax laws. 
  4.  Submit the tax return to the FTA through their online platform, e-Services, on or before the due date.
  5.  Pay the tax liability as per the tax return filed on or before the due date.

In case if a company fails to pay its tax liability, 500 AED for each full or partial month throughout the first 12 months. 1,000 AED for each month or part of a month after the thirteenth month. Penalties shall be applicable from the day after the deadline for filing a tax return and are assessed monthly after that. If the records and information required by the Tax Procedures Law or the Corporate Tax Law are not kept up to date,a penalty of 10,000 AED for each infraction. 20,000 AED for repeated offenses committed within 24 months of the last violation.

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Legal Disclaimer:

 The information provided on the page is for informational purposes only and should not be construed as legal or tax advice. For consultation related to corporate tax compliance, book an appointment with Avyanco Auditing LLC.

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Choose Avyanco Auditing LLC to transform your company. To guarantee compliance, optimize processes, and boost business performance, our knowledgeable staff contributes unmatched industry knowledge and strategic insights, Select Avyanco Auditing LLC for dependable, value-added auditing services catered to your unique requirements. To book a consultation, contact us today.

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Frequently Asked Questions – About Corporate Tax.

Which types of businesses are subject to corporate taxation in the UAE?

Companies involved in the production and development of oil and gas, overseas bank branches, and the selling of hydrocarbons are generally subject to corporate taxation or special fees.

Are there any exemptions or incentives available under the UAE corporate tax laws?

Even though there isn’t a federal corporate income tax, certain emirates might provide incentives or exemptions in order to draw in investment. These could be reduced rates for specific industries, income tax holidays, or exemptions from customs charges.

How are profits calculated for corporate taxation purposes in the UAE?

When corporate taxes is in effect, profits are typically determined using financial statements that are prepared in compliance with international accounting standards and modified in accordance with local tax laws.

What are the reporting and compliance requirements for corporations regarding tax matters in the UAE?

Companies that must file annual tax returns and adhere to other reporting requirements established by the applicable authorities in the emirate of operation are usually required to do so if they are subject to taxation in the United Arab Emirates.

Are there any specific industries or sectors that are treated differently under UAE corporate tax laws?

Indeed, certain businesses may be subject to certain tax laws or fees. Examples of these include banking, finance, and the oil and gas sector.

How does the UAE tax system handle international transactions and cross-border activities for corporations?

To lessen the tax burden on foreign transactions, the UAE has implemented several double taxation avoidance agreements (DTAA) with other nations. To guarantee that transactions between linked organizations are carried out at arm’s length, transfer pricing laws may also be applicable. Complying with these standards is crucial for firms involved in cross-border operations.