UAE introduces corporate taxes with effect from 1st June, 2023.
Corporate tax (CT) is a form of direct tax levied on the net income or profit of corporations and other entities from their business. Here are the key important things you should be aware of the UAE corporate taxes.
Corporate tax @ 9% for taxable income exceeding AED 375,000
Corporate tax @ 0% for taxable income upto AED 375,000 to support small businesses
Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses .UAE Corporate Tax will apply to all UAE businesses, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation. Foreign entities and individuals will be subject to Corporate Tax only if they conduct a trade or business in the UAE in an ongoing or regular manner.
UAE Corporate Tax will apply equally to all categories of profits and other (net) income reported in the financial statements prepared in accordance with internationally acceptable accounting standards. The UAE CT is a Federal tax and will therefore apply across all Emirates.
The taxable income will be the accounting net profit of a business, after making adjustments for certain items. The accounting net profit of a business is the amount reported in the financial statements prepared in accordance with internationally acceptable accounting standards.
#1 - Applicability
UAE CT will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation
Applicable with effect from 1st June, 2023
Foreign entities and individuals will be subject to UAE CT only if they conduct a trade or business in the UAE in an ongoing or regular manner
Businesses engaged in real estate management, construction, development, agency and brokerage activities will be subject to UAE CT
Banking operations will be subject to UAE CT
#2 - Tax rates
The CT rates are:
● 0% for taxable income up to AED 375,000;
● 9% for taxable income above AED 375,000; and
● a different tax rate for large multinationals that meet specific criteria
#3 - Exclusions
Not applicable on an individual’s salary and other employment income
Investment in real estate by individuals in their personal capacity
Qualifying intra-group transactions and reorganizations will not be subject to UAE CT provided the necessary conditions are met
CT will not be levied on foreign investor’s income from dividends, capital gains, interest, royalties and other investment returns
Interest and other income earned by an individual from bank deposits or saving schemes will not be subject to UAE CT
#4 - Freezones
A company established in a free zone will be required to register and file a CT return
Freezone businesses that meet all the necessary requirements can continue to benefit from corporate tax incentives
However, it is tobe noted that, businesses registered in freezones and conducting business in mainland may not be able to avail the tax benefits.
#5 - Other relevant tax provisions
Excess tax losses may be carried forward and used against taxable income in future years.
A UAE group of companies can elect to form a tax group and be treated as a single taxable person. Single tax return for the entire tax group applies.
UAE withholding tax will not be applicable on domestic and cross-border payments of any nature
Only one CT return will need to be filed electronically per financial period
No provisional or advance CT filings will be required
Similar to other taxes in the UAE (e.g. VAT), businesses will be subject to penalties for non-compliance with the CT regime.
#6 - Tax computation method
If a business has earned taxable income of AED 500,000 in a given financial year, what
will be the UAE CT amount payable?
The CT liability will be calculated as follows:
●Taxable income of AED 0 - AED 375,000 at 0% = AED 0
●Portion of taxable income exceeding AED 375,000 (i.e. AED 500,000 - AED 375,000 =
AED 125,000) at 9% = AED 11,250
Be prepared & be in compliance !
Ensure your accounting records are maintained as per IFRS & get your books audited.
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