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Money Talk: UAE Corporate Tax New Regulations

Dubai is more than just a playground for the rich; it’s a tax reformer now too. One of the most notable changes has been the introduction of corporate tax. Discover how these changes impact your business in the city of dreams. 

Income Tax Return Deduction

Understanding Corporate Tax in the UAE

  1. What is Corporate Tax?

Corporate tax, also known as Corporate Income Tax or Business Profits Tax, is a direct tax levied on the net income or profit of corporations and business entities. In essence, it’s a tax imposed on the profit that a business makes, and companies are required to pay a certain percentage of their profit as tax.

  1. Who Should Pay Corporate Tax in the UAE?

All businesses whose taxable net profit exceeds AED 375,000 fall under the purview of corporate tax in the UAE. This means that if your business earns more than this threshold, you are required to pay a certain percentage of your net profit as corporate tax.

  1. The Corporate Tax Rate

The corporate tax rate in the UAE stands at 9% of the net profit made by businesses. However, in a bid to support small businesses and startups, the corporate tax rate is set at 0% if the net profit is up to AED 375,000.

  1. The Implementation & Release of UAE Corporate Tax

The UAE authorities have announced the introduction of corporate tax, effective from 1st June 2023. The corporate tax law was released on 9th December 2020, through a ‘Federal Decree-Law no. 47 of 2022,’ which is available on the official website of the Ministry of Finance.

  1. Exemptions from Corporate Tax

Not all businesses or income sources are subject to corporate tax. Here’s a list of entities and income that are exempt:

– Individuals are exempt from corporate tax, meaning that income from employment, real estate, investments in shares, and other personal income unrelated to a trade or business in the UAE is not taxable.

– Foreign investors who do not conduct business in the UAE are also exempt.

– Corporate tax incentives are provided to free zone businesses that comply with regulatory requirements.

– Capital gains and dividends from qualifying shareholdings are exempt.

– Qualifying intragroup transactions and restructurings are not subject to corporate tax.

Consult lawyers in Dubai, to ensure a smooth transition with the compliance of new rules.

  1. How Corporate Tax is Calculated

Calculating corporate tax in the UAE is relatively straightforward. It is 9% of the net profit shown in a company’s financial statements, but only if the taxable net profit exceeds AED 375,000. To illustrate, if a company’s net profit is AED 4,75,000, the corporate tax would be AED 9,000 [(AED 4,75,000 – AED 3,75,000) x (9/100)].

  1. UAE’s Position in the GCC

With the introduction of corporate tax, the UAE becomes the fourth GCC country to implement federal corporate tax regulations. This move aims to strengthen the UAE’s position as a global hub for businesses and investments while adhering to international standards for tax transparency and the prevention of harmful tax practices.

  •  Free Zones and Tax Benefits

One of the unique aspects of the UAE’s corporate tax system is the treatment of businesses operating in free zones. Companies in free zones can enjoy zero tax on income if they meet specific criteria related to their activities. These criteria include fund management, manufacturing, reinsurance services, and more. However, it’s essential to check with your specific free zone to ensure your activities qualify for these tax benefits.

business people working together
  1. The Way Forward

The emphasis should be on building a robust understanding of the new regulations and ensuring that financial data is accurate. This is not just a task for the day corporate tax becomes effective but an ongoing commitment.
In conclusion, the introduction of corporate tax in the UAE represents a significant change in the country’s fiscal policies. While it might raise questions and concerns among businesses and investors, it’s essential to recognize that the UAE continues to offer a favorable climate for business growth.  For businesses seeking guidance on navigating these new regulations, consulting with the best legal firm in Dubai can be a prudent step.