Initiated on June 1st 2023, Key Aspects, and Exemptions
As of June 1, 2023, a standard statutory rate of 9 percent corporate tax has been implemented, applicable for the fiscal year starting on or after that date. Here’s what you need to know about corporate taxation in the UAE.
How Much Is the Tax Rate?
The UAE has introduced a federal corporate tax with a fixed statutory rate of 9 percent, effectively from the fiscal year starting on or after June 1. This new regulation includes companies whose income exceeds Dh375,000 ($102,110) within the taxable category. Profits falling below this threshold will not be subject to any tax.
In May, the Ministry of Finance clarified that corporate tax would only apply to business owners whose annual turnover surpasses Dh1 million, ensuring that only income derived from business-related activities is taxable.
For instance, if a business owner or entrepreneur earns Dh500,000 from their business in a calendar year, they will not be liable for tax on those earnings. However, if a UAE resident operates an online business with an annual turnover exceeding Dh1 million, that income would be subject to corporate tax.
It’s important to note that income from rental properties and personal investments will remain tax-free, as they are categorized as out-of-scope sources of income according to the ministry’s guidelines.
Registration
Businesses in the UAE that fall under the corporate tax jurisdiction must complete the registration process and secure a tax registration number. Typically, this registration application should be submitted to the Federal Tax Authority (FTA).
Companies subject to taxation are obligated to submit their tax returns to the FTA within nine months of the conclusion of the financial year.
For entities operating within a tax group structure, the parent company is responsible for submitting a consolidated tax return on behalf of the entire group to the authority.
In certain cases, the FTA may require individuals or entities that are exempt from tax to undergo corporate tax registration.
Exemptions
Numerous exemptions are available to businesses operating within strategically significant sectors. Those who are not subject to corporate tax comprise government entities, government-controlled entities, extractive and non-extractive natural resource enterprises, qualifying public benefit organizations, qualifying investment funds, public pension or social security funds, as well as private pension or social security funds.
Additionally, entities owned and controlled by exempt individuals or entities can be exempt from corporate tax if they engage in activities that align with the exempt person’s interests, exclusively manage assets or invest funds for the exempt entity’s benefit, and conduct activities exclusively ancillary to those undertaken by the exempt individual or entity.
In May, the UAE Ministry of Finance released three new ministerial decisions elucidating these exemptions and outlining the process for preparing financial statements. In April, the ministry also clarified that small businesses in the UAE, generating revenue of Dh3 million or less, are eligible for a novel corporate tax relief initiative.
Compared to other global financial centres
Regarding the global corporate tax landscape, the UAE’s standard statutory rate of 9 percent positions it competitively when compared with other financial centers and developed economies. The average top corporate tax rate within the European Union stands at 21.3 percent, while it reaches 23.04 percent among Organisation for Economic Co-operation and Development countries and 26.7 percent within the G7, as reported by the Tax Foundation in Washington.
Over the last four decades, corporate tax rates have witnessed a decline, with the global average decreasing from over 40 percent to a range between 25 percent and 30 percent, based on data from the Tax Foundation. The UAE intends to maintain its corporate tax rate at the current level for the foreseeable future.
Contact us for more information regarding corporate tax and company setups.