Understanding The UAE Corporate Tax 2023: An In-depth Guide

by growwthpartners

October 11, 2023

The government of UAE on the 31st of January 2022 announced that it had introduced a new corporate tax. This announcement signals a major change in the UAE’s tax environment, as the country has not taxed most companies for many years. However, when these new tax rules take effect starting from June 1, 2023, several firms operating within UAE will have to adapt to this new corporate tax rate of 9 percent. This article presents an ultimate handbook about United Arab Emirates’ corporate taxes.

History of Corporate Tax in UAE

The United Arab Emirates (UAE) has been a low taxation jurisdiction historically. Its citizens do not pay income tax and most businesses there are exempt from paying any form of corporate tax at all. The revenues came mainly from nationalized fossil fuel extraction industries and private ones which used to pay around 50% levy on their receipts. Foreign banks were also subjected to a twenty percent corporation tax on their operating profit while hotels and restaurants in Dubai paid some taxes.

However, since the government wants to diversify its economy away from fossil fuels, VAT was introduced in UAE in 2018 with a five percent charge applicable to all consumer purchases. Besides that, corporative fee of nine percent was announced by the state in January 2022 for implementation next year as per the press release issued by Emirati Government. The new U.A.E corporate tax is meant for conformity with international norms against tax evasion.

Understanding the UAE’s 2023 Corporate Tax

In particular, this is a nine percent U.A.E.’s corporate rate imposed on company profits (revenues less expenses) exceeding AED375000 ($100000). Entities earning below this figure will still be subject to zero rating taxes. This means businesses must begin saving money towards settling their obligations as soon as June 1st arrives for them to remit these taxes.

Key Features of the UAE Corporate Tax Regime

The UAE’s corporate tax regime consists of various policies ranging from tax-free zones to corporate taxes and VAT systems. Therefore, below are some salient points about the system:

Taxable Entities	In addition, the legal entities such as LLCs, PSCs, PJSCs, LLPs etc will be taxed. Also any foreign legal entity that generates income in UAE satisfied the test of residency will face this charge.
Tax Rates	Businesses earning not more than AED 375000 shall be charged a zero percent tax whereas those making above this amount will be subjected to a rate of nine percent.
Tax Exemptions	An exemption from corporate tax is included in corporate tax law on receipt of dividends or sale of shares in subsidiary firms. Also, charitable organizations, public benefit organizations, investment funds and oil & resources extraction businesses plus wholly government owned companies are exempted from paying corporation taxes.
Calculating Taxable Income	However, generally the company financial statements net profit/ loss will determine the taxation percentage and income level.
Tax Credits	There is provisions for double taxation relief under which credit for foreign taxes paid in another jurisdiction is allowed against non-exempted taxable foreign source incomes.

Impact on Free Zone Companies

The influence of the new UAE corporate levies on those businesses located in the free areas is yet to be clearly known. The announcement states that enterprises operating in free zones will still enjoy their respective zones’ predetermined incentives. Nevertheless, this might change going forward.

Personal Income and Capital Gains Tax in Dubai

It is not presently part of Dubai or UAE’s plan to tax individuals’ earnings. Dubai has a 5% Value Added Tax (VAT) applicable on consumer goods and services as the only kind of personal income tax. Additionally, there is no intention to impose a capital gains tax on dividends received in Dubai or the United Arab Emirates.

Why Start a Company in Meydan Free Zone?

The zero percent profit tax regime in central Dubai, Meydan free zone that even after the new corporate taxation from June 2023, companies located here are exempted from this obligation. Moreover, it has advantages of being conveniently placed close to downtown business area, international airport, the highways and entertainment facilities; around-the-clock usability; well-established internet access; and technical support.

FAQs

Is UAE business tax-free?

Nonetheless, while mainland-based entities will have to pay certain taxes, there are some exceptions such as Dubai-based free zones including Meydan Free Zone where zero percent taxes apply to businesses’ earnings.

Who pays corporate tax in the UAE?

All operational businesses are mandated to pay corporate tax with few exceptions applying to certain business models.

Why was corporate tax introduced in the UAE?

It was done so in order to enhance Dubai’s status as an investment and innovation hub globally under a comprehensive and extensive corporate structure with affordable registration costs including no taxes on corporations.

How much is corporate tax in the UAE?

Dubai follows progressive system of levying corporation taxes ranging between nine to fifty five %.

Final Thoughts

The introduction of corporate tax legislation marks a crucial point affecting many firms within this nation. It is essential for businesses to understand these new rules regarding taxation so that they can adapt accordingly. At Growwth Partners we specialize in helping companies navigate through these types of financial transitions. At Growwth Partners, we specialise in guiding businesses through such financial transitions. Our team of experienced finance professionals offers expert advice and services tailored to ensure compliance with these new regulations. Partner with us, and let’s navigate these changes together, ensuring your business thrives amidst evolving financial landscapes.

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