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UAE's Corporate Taxes: Key Highlights Explored

October 3, 2022
Fortius Team
Corporate tax auditing.

The United Arab Emirates is synonymous with wealth, opportunities, opulence, and beneficial tax policies. A recent development in the UAE's tax system has created quite a buzz in the business world. In a country where citizens are free of income tax burdens, the UAE government plans to introduce the corporate tax in June 2023, which is not very long from now.

Let's unravel the details.

What Are Corporate Taxes?

Before delving into the UAE and its corporate taxes, we must understand the term. Corporate taxes are direct taxes levied on an organisation's net profit or revenue.

Also known as "Corporate Income Tax," it applies to all legal business entities and commercial activities. The only business activities exempted from corporate taxes are those involved in extracting natural resources, which are required to pay taxes under emirates specific taxes. The UAE government may add other businesses to the exempted list in due course of time.

UAE's Corporate Taxes: What Does it Mean for UAE-Based Businesses?

UAE's corporate tax laws apply to UAE-based businesses with a trade license or permit. It also includes the taxable income earned from freelancer permits exceeding the limit of Aed 375,000. All Emirates will be subject to corporate tax, which is federal in nature. Taxes will be levied on a business's net profit after certain adjustments are made per the legislation.

Take a look at some of the key highlights of UAE's new corporate taxes:

  • Corporate tax is not applicable for taxable income of Aed 375,000.
  • 9% tax will be levied on businesses earning more than Aed 375,000. (Tax will be calculated for the portion of the income that exceeds Aed 375,000.)
  • Large MNCs having consolidated global revenues above Aed 3.15 billion and those that meet specific criteria will have a different tax rate.
  • Corporate income tax applies to banking operations in the UAE and freelance professionals working with a freelance permit or license.
  • Corporate taxes should be filed online once a year.
  • This regime will not withhold tax on domestic or cross-border payments.
  • Multiple companies can form a tax group and file a single tax for the entire group.
  • UAE businesses will be subject to Transfer Pricing rules that apply to arm's length transactions between related parties.
  • Registration and filing of periodic returns are mandatory for businesses subject to corporate laws. Non-compliance will attract penalties.

Are Corporate Taxes Applicable for Everyone in The UAE?

No, these taxes are not applicable for:

  • Capital gains
  • Individual salaries
  • Employment-based income
  • Investment in dividends and real estate
  • Income from shares and debentures
  • Income from bank deposits and saving schemes
  • Foreigner's income from capital gains, interests, royalties, and dividends

What About Companies in the Free Zones?

Companies operating in the free zones are exempt from corporate taxes. However, they must register and file corporate tax returns if they have business activities and transactions with organisations in mainland UAE. Companies operating in both areas with dual licenses will most likely bear the brunt of this new tax policy. Tax experts believe that many businesses may shift base to the free zones to avail of tax benefits.

Corporate Taxes: A Boon or Bane for UAE's Businesses?

The obvious question on everyone's mind is: Why is the UAE government enforcing corporate income taxes? Firstly, the government plans to introduce this new tax regime to create strategic objectives for further advancement that will make the UAE a leading centre for new businesses and investments.

In addition, the UAE has traditionally been associated with an oil-driven economy. Although it is true to an extent, the UAE government is slowly trying to change that image by generating other revenue means. Introducing corporate taxes is a huge step to aligning themselves with the global business community.

Business owners in the UAE will benefit from the corporate income tax regime since its rules and regulations are tailored to benefit businesses and individuals who pay taxes on their profits. The corporate tax regime also aims to:

  • Mitigate compliance burden for UAE-based businesses
  • Take advantage of UAE's double tax treaty network
  • Prevent fraudulent tax practices
  • Level up with global tax transparency standards

Hence, UAE's corporate income tax policy will definitely prove to be beneficial for businesses aiming to thrive in the international market.

Would you like to know more about corporate taxes?

Get a free consultation with Fortius Consulting Services. Book an appointment now!

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