Several Emirati and foreign businesspeople and investors interested in launching investments in Dubai and other critical regions are interested in corporate tax in the UAE.
The introduction of a new law regarding the tax on corporate and commercial earnings marks a new economic milestone in the UAE’s period of financial sector developments. According to Federal Decree No. 47 of 2022, the new law is set to take effect on or after June 1, 2023. This means that UAE corporate tax registration becomes necessary for most businesses operating in the UAE. To comply, they will need to obtain a Tax Registration Number.
Further information about the UAE company tax law for the year 2023 is provided below:
What Is Corporate Tax?
A corporate tax is essentially a fee levied by the government on the profits of a corporation. Here’s a breakdown of how it works:
- Tax Base: It’s calculated on a company’s net income, which is revenue minus business expenses.
- Rate: The tax rate is a percentage applied to the net income. This rate varies depending on the country.
- Purpose: It serves as a major source of income for governments, funding public services and infrastructure.
Corporate tax is a tax that companies pay on their profits. In the UAE, this tax applies to most businesses. Knowing how to handle this can save you a lot of hassle later.
Corporate Tax in the UAE:
The United Arab Emirates introduced a federal corporate tax system in June 2023. Here’s a breakdown of the key points:
- Rates:
- 0%: Applies to profits up to AED 375,000 (approx. $102,000).
- 9%: Applies to profits exceeding AED 375,000.
- There’s an additional, yet unspecified rate for large multinationals meeting certain criteria.
- Qualifying Income: Certain types of income are exempt from the 9% tax rate. You can find details on the specific qualifying income categories in Cabinet Decision No. 55 of 2023.
What are the policies for implementing the UAE’s corporation tax code in 2023?
Following the announcement by the UAE government of new tax legislation that would apply to enterprises beginning their fiscal year on or after next June, corporations will be subject to a federal tax by Federal Decree-Law No. (47) of 2022 regarding corporate and company tax.
This tax is a type of direct tax levied on a company’s net income or profit and is levied at a rate of 9% on taxable income exceeding AED 375,000.
The corporate tax law in the UAE applies to:
- All organizations and individuals who engage in investment operations in the country under a commercial license or permit to carry out the commercial, industrial, or professional activity.
- Establishment of a business in a free zone.
- Foreign companies and individuals who engage in continuous or regular commercial activity in the UAE.
- Banking operations.
- Businesses engaged in real estate management, construction, development, real estate agencies, and real estate brokerage activities.
The Federal Tax Authority is in charge of the administration, collection, and enforcement of corporation tax laws and rules.
In June 2023, UAE Corporation Tax Rate
The law imposes a 9% tax on taxable income over AED 375,000. Taxable income under AED 375,000 is taxed at 0%.
The law created a separate tax rate for major multinational firms that met certain criteria, based on the “second pillar” of the Organization for Economic Co-operation and Development’s “Erosion of the Tax Base and Transfer of Earnings” program.
The UAE Corporation Tax Objectives
Although this news may appear to be concerning, we would like to tell you that the implementation of corporate taxes can provide numerous benefits to businesses in the UAE. The state enacted this law for certain reasons, including:
- Increasing the UAE’s worldwide leadership as a business and investment hub.
- Striving to accelerate the country’s development and transformation to meet its strategic goals of greater infrastructure, investment possibilities, and a better business environment.
- Reaffirming the state’s commitment to achieving international tax transparency requirements and combating damaging tax practices.
- Investing in critical sectors such as education, healthcare, and innovation, as well as establishing new opportunities for businesses to collaborate with the government and reap the advantages.
Steps to UAE corporate tax registration:
- Get Your Documents Ready: Gather your business license, financial records, and identification documents.
- Visit the Federal Tax Authority (FTA) Website: Head to the FTA website and create an account.
- Fill Out the Registration Form: Complete the form with your business details. Make sure everything is accurate.
- Submit the Form: Once you’ve filled out the form, submit it online.
- Wait for Approval: The FTA will review your application. If everything is in order, you’ll get your tax registration number.
Is It Mandatory to Register for Corporate Tax in the UAE?
Yes, it is! Every business in the UAE must register for corporate tax. This includes large corporations and small businesses alike.
Do Private Banks Have to Pay Corporate Taxes in the UAE?
Absolutely! Private banks, like other businesses, must pay corporate tax in the UAE. They follow the same registration process as other companies.
Do Free Zone Companies Pay Corporate Tax in the UAE?
Here’s some good news for free zone companies: they enjoy special tax benefits! Most free zone companies don’t have to pay corporate tax for a set period. But they still need to register. Always check the specific rules for your free zone. Read more about freezone company setup in the UAE
Understanding the Corporate Tax in UAE Law
The UAE corporate tax law sets the rules for how businesses pay taxes. It’s important to understand this law to ensure your business complies. The law outlines who needs to pay taxes, how much to pay, and when to pay.
What Is the UAE Corporate Tax Rate?
The UAE corporate tax rate is competitive compared to many other countries. This rate can vary depending on your business type and location. Generally, it’s designed to encourage businesses to thrive in the UAE.
Common Questions About
- What if I don’t register my business for corporate tax?
Not registering can lead to fines and legal trouble. It’s better to stay on the right side of the law.
- Can I register for corporate tax online?
Yes, the FTA website allows for online registration. It’s quick and convenient.
- Do I need an accountant to register for corporate tax?
While not required, having an accountant can make the process smoother. They can ensure everything is filled out correctly.
UAE corporate tax registration doesn’t have to be stressful. Follow these steps, stay informed, and seek help when needed. By doing so, you’ll keep your business compliant and focus on what you do best: growing your business.
Remember, staying on top of your corporate tax responsibilities is not just about avoiding penalties. It’s about building a trustworthy and reputable business in the UAE. Happy registering!
We’ll Assist! Contact Freezoner, Tax Advisors
Ask Freezoner’s UAE tax specialists about the UAE business tax, which will take effect on June 1. You can submit your request by visiting the Contact Us page and finding the right communication method. Our consultants help you comprehend corporation tax legislation, register for tax, get a UAE corporate tax registration number, and more. Freezoner keeps you informed on UAE and global business happenings, to proactively comply with the new tax regime. Let’s work together to ensure growth and prosperity for our businesses and the UAE economy.