Starting from June 1, 2023, the United Arab Emirates implemented a new corporate tax regime, affecting nearly all business entities in the country. As the UAE transitions from a tax-free environment, this move aims to enhance tax transparency, align with international financial standards, and address issues like tax evasion and illegal activities. This development is crucial as the UAE seeks to strengthen its position as a global financial hub, adopting advanced tax and accounting practices. In 2024, the country made notable strides in this direction, leading to its removal from the FATF “gray” list, signaling positive progress and suggesting continued improvements in its tax system.

Corporate Tax Registration Requirements

By 2024, all legal and natural persons conducting business in the UAE must register for corporate tax with the tax authority, obtain a taxpayer registration number, and submit an annual tax return. Failure to register on time will result in a penalty of AED 10,000. Corporate tax registration, along with the preparation and filing of tax returns, involves several steps that must be followed precisely to ensure compliance. Seeking guidance from a tax consultant is recommended to navigate the complexities of corporate tax and avoid potential penalties.

Key Definitions of UAE Federal Corporate Tax Law

• Corporate Tax Rate: The UAE offers a competitive corporate tax rate of 9%, one of the lowest globally. Special provisions allow for reductions to 0% for businesses in qualifying free zones and for small businesses with annual revenues under specific thresholds. These measures are aimed at encouraging targeted economic activities and supporting small enterprises.

• Tax Base: Corporate tax is levied on a company’s taxable income, which is determined by its net profits or losses, adjusted for specific items as per UAE tax regulations. The law applies uniformly across all Emirates to ensure consistency in tax practices.

• Taxable Income: Taxable income includes all revenue generated by a business, after deducting allowable expenses in accordance with UAE corporate tax rules. Businesses can also adjust their net profits for qualifying deductions, such as carried-forward losses and applicable incentives.

• Taxable Persons: Both juridical persons (companies) and natural persons (individual entrepreneurs operating under a license) are subject to corporate tax. Additionally, foreign entities with a UAE permanent establishment or income from UAE sources may also be liable for corporate tax, depending on the nature of their income and business activities.

• Exemptions: Certain entities and income types are exempt from corporate tax, including government bodies, investment funds, pension funds, and companies involved in natural resource exploration. Specific types of income, such as dividends and real estate gains, may also be exempt from corporate tax.

Who is Subject to Corporate Tax in the UAE?

For corporate tax purposes, taxable persons include both residents and non-residents, regardless of the individual’s UAE residency status, visa status, or physical presence in the country. This classification applies to all businesses operating in the UAE, whether domestic or foreign.

Corporate Tax Rates in the UAE

Mainland Companies:

• Taxable profits up to AED 375,000 are taxed at 0%.

• Taxable profits exceeding AED 375,000 are taxed at 9%.

Free Zone Companies:

• For companies earning income from qualifying activities (Qualifying Free Zone Person), the corporate tax rate is 0%. To qualify for this zero rate, the company must meet the following criteria:

  • The company’s activities must align with government-defined qualifying activities.

  • The company must operate within the free zone.

  • The company must own a sufficient amount of assets.

  • The company must have an adequate number of qualified employees.

  • The company must demonstrate a sufficient level of operating expenses.

• If a company’s non-qualifying income exceeds 5% or AED 5 million of its total income (whichever is lower), the entire profit will be subject to the standard 9% corporate tax rate.

Small Business Relief (SBR):

• For persons with annual revenue up to AED 3 million, they may opt for the Small Business Relief (SBR) tax regime, which offers 0% corporate tax. If the threshold is exceeded, the SBR regime can no longer be applied. The SBR is valid until December 31, 2026.

Natural Persons Conducting Business Activities:

• This includes freelancers, self-employed individuals, sole entrepreneurs, and others operating under a commercial license.

  • If the annual turnover is up to AED 1 million, the tax rate is 0%.

  • If the turnover exceeds AED 1 million, corporate tax is charged at 9% on profits exceeding AED 375,000.

  • Freelancers and sole entrepreneurs can apply for Small Business Relief (SBR) if their revenue is up to AED 3 million, effectively reducing the corporate tax rate to 0%.

  • When the turnover reaches AED 1 million, individuals must register for corporate tax and file an annual tax return.

Exemptions from Corporate Tax:

The following categories are exempt from corporate tax:

• Federal and Emirate governments, their agencies, authorities, and other government entities.

• State-owned enterprises.

• Companies involved in the exploration of natural resources within the UAE.

• Public benefit organizations.

• Investment funds.

• Government and private pension and social security funds.

Income Not Subject to Corporate Tax:

• Individual salary

• Investment income and income from deposits

• Real estate income

• Rental income

• Dividend income

• Inheritance

• Capital gains

Tax Groups:

Entities may form a tax group if:

• The parent company holds at least 95% of the share capital, voting rights, and profits of its subsidiaries.

• The parent and subsidiaries share the same financial year and accounting standards.

• Neither the parent nor the subsidiary can be classified as an exempt person or a Qualifying Free Zone Person.

Navigating Corporate Taxes in Dubai with visakingsdubai

To ensure compliance with UAE tax regulations and avoid potential tax or banking issues, all businesses and individuals conducting activities in the UAE must adhere to tax obligations, file tax returns on time, and submit the required financial statements. At visakingsdubai, our experienced team of tax consultants, business advisors, and accountants can guide you through the complexities of UAE corporate taxes. Contact us today to have your concerns addressed and ensure your business remains compliant!