For many years, the United Arab Emirates has been a tax haven with its 0% tax rate. However, in December 2022, the UAE government introduced its first-ever corporate tax regime with a 9% corporate tax (CT) rate. This new tax regime became effective for businesses with fiscal years starting on or after June 1, 2023, and applies uniformly across all Emirates.
If you’re an entrepreneur, investor, or business owner operating in the UAE, understanding and complying with the new corporate tax regulations is crucial to avoid any penalties. This article will guide you through the essentials of corporate tax in the UAE to ensure your business remains compliant.
Who Needs to Pay Corporate Tax in the UAE
According to the CT Law, all the companies in the UAE and people engaged in any sort of business activity are eligible for the corporate tax. Foreign companies are subject to UAE corporate tax if they have a significant physical presence in the UAE or derive income from their activities or assets in the UAE.
Certain entities are exempt from paying UAE corporate tax, including:
- UAE government entities and specific government-controlled entities
- Businesses engaged in extracting natural resources like oil, gas, and minerals under separate tax regulations established through concession agreements or fiscal letters
- Qualifying public benefit entities dedicated to social welfare
- Qualifying investment funds such as Social Security funds
If your business falls under any of these exemptions, you must register for corporate tax and then apply for exemption to the Federal Tax Authority of UAE. Failure to do so will subject your business to corporate tax on taxable income, and it will not be considered for exemption.
UAE Corporate Tax Rate
According to the Federal Decree-Law No. 47 of 2022, the standard tax rate in UAE is 9% of taxable income above AED 375,000 (approximately USD 102,000). If your taxable income is below this threshold, your business will be subject to a 0% tax rate.
Companies established in the UAE free zones are also subject to a 0% tax rate as long as they meet the Qualifying Free Zone Person (QFZP) criteria and have qualifying income.
Similarly, individual business owners are subject to the 9% corporate tax on their taxable income only if their annual turnover exceeds AED 1 million. If their annual turnover is below this, they are not liable to pay taxes.
Corporate Tax Regulations in the UAE
- Standard tax rate is 9% on taxable income above AED 375,000 (USD 102,000).
- Taxable income below AED 375,000 is subject to a 0% tax rate.
- Free zone companies pay 0% tax if they meet Qualifying Free Zone Person (QFZP) criteria.
- Individual business owners pay 9% tax only if annual turnover exceeds AED 1 million.
- No tax liability for individual business owners with turnover below AED 1 million.
It’s important to note that regardless of whether you need to pay taxes, have no tax liability, or are exempt, you must register for corporate tax with the UAE Federal Tax Authority (FTA) and obtain your Corporate Tax Registration number. The administrative penalty for non-registration is AED 10,000.
UAE Corporate Tax for Free Zone Companies
The new corporate tax framework has specific considerations for companies operating in the UAE’s free zones. A free zone company can potentially benefit from the 0% tax rate on its qualifying income, provided it meets the criteria to be classified as a Qualifying Free Zone Person (QFZP).
What is a Qualifying Free Zone Person (QFZP)?
A QFZP is a business entity registered within a UAE free zone that meets the following criteria set by the UAE Corporate Tax Law:
- Has significant operations within the free zone.
- Earns income primarily from qualifying activities carried out within the free zone or outside the free zone (Qualifying Income).
- Chooses not to opt for the standard UAE Corporate Tax system.
- Follows strict transfer pricing rules for transactions between related companies.
- Maintains detailed records and financial statements.
To qualify for the 0% tax rate, a free zone company must first register for corporate tax. Once you have the corporate tax number, you need to submit the application for Qualifying Person before your financial year ends.
Tax Compliance and Filing Requirements for Businesses in the UAE
Businesses subject to corporate tax in the UAE have specific responsibilities to ensure compliance with the new regulations. These include:
Registration:
Companies must register for corporate tax with the designated authorities, such as the Federal Tax Authority (FTA).
Record-Keeping:
Maintain proper accounting records that accurately reflect income and expenses, as well as supporting documentation for tax purposes.
Tax Filing:
Accurately file tax returns within the specified deadlines, which may include annual corporate tax returns, transfer pricing documentation, and other required filings.
Tax Payment:
Timely payment of any corporate tax due based on the filed tax returns.
Failure to comply with these requirements can result in penalties of up to AED 10,000 depending on the violation.
When to File Corporate Tax Returns in the UAE
Under Article 48 of the Federal Decree Law 47, businesses operating in the UAE are required to submit their corporate tax returns no later than 9 months after their fiscal year ends, unless a different timeline is specified.
Based on that, the upcoming corporate tax return deadlines for the financial year 2024 are as follows:
– For the financial year July 2023 to June 2024, you need to file your corporate tax return by 31 March 2025.
– If the financial year is from January 2024 to December 2024, you need to submit the return by 30 September 2025.
Simplify Your Corporate Tax Registration and Returns in the UAE
Navigating the complexities of corporate tax in the UAE can be challenging. Ensuring compliance with the new regulations requires meticulous planning and expert knowledge.
To streamline your corporate tax registration and filing process, consider consulting with DXB-VIP. Contact us for a tailored consultation or leave a comment below to share your thoughts.
