Corporate Tax Compliance Requirements In Uae

WHAT DOES CORPORATE TAX MEAN?

A corporate tax, often known as a corporation tax or business tax, is a direct tax levied on the profits or assets of corporations and similar legitimate bodies. The imposition of corporate tax is practiced in many countries around the world. If some of those countries do not have a corporate tax regime in particular, they may have a similar tax scheme on state or local levels.

WHEN WAS CORPORATE TAX INTRODUCED IN UAE?

The Ministry of Finance announced on January 31, 2022, that starting on or after June 1, 2023, a federal level corporate tax of 9% will be imposed in the United Arab Emirates. This announcement may have significant ramifications for how businesses are set up in Dubai and the other United Arab Emirates. In the UAE, the majority of enterprises do not really pay corporate taxes. A 50-year corporation tax moratorium that is renewable is typically available to free zone businesses. However, subject to exclusions, all UAE enterprises will be required to pay corporate income taxes as of 1 June 2023.

WHAT IS THE PURPOSE BEHIND COPRORATE TAX SCHEME IN UAE?

The end of the era in which the majority of corporations in the UAE do not pay tax on their business profits is in a way signaled by the introduction of the federal level corporate tax in the UAE. Although the corporate tax rate in the UAE is only 9%, it is still extremely low by global standards, making the country appealing to overseas investors.

WHAT IS THE CORPORATE TAX RATE IN UAE?

The corporate tax rate in the UAE is 9%. All companies in the UAE must adhere to this. There are a few exemptions, though, and more may be announced after the new corporate income tax system is fully implemented. For instance, firms with taxable income of up to AED 375,000 will continue to be eligible for the 0% income tax rate. Additionally, major multinational corporations that meet the requirements will be subject to a different tax rate which has not been disclosed yet. Lastly, companies that extract natural resources will continue to be taxed at the emirate level. One of the lowest corporate tax rates in the world is still applied in Dubai and the other UAE emirates, where the rate is 9%.

HOW IS CORPORATE TAX CALCULATED?

The calculation of corporate taxes is based on net accounting income. You must include all of the income from all of the revenue streams in order to calculate net income, also known as net profit or net earnings. You must also figure out the costs associated with generating these profits, such as operating costs, loan interest and depreciation costs among others.

Your net income is the total of all of your income less the total of all of your costs. That is also taxable income for you. To calculate your corporation tax obligation, multiply the net income of your business by the 9% corporate tax rate in the UAE. Additionally, it should be emphasized that the accounting net income must follow generally accepted accounting standards (subject to a few adjustments).

WHAT ARE THE EXEMPTIONS FOR THE CORPORATE TAX REGIME IN UAE?

The UAE’s 9% corporate income tax, which will go into effect on or after June 1, 2023, will be subject to the following exemptions:

• Companies that extract natural resources will continue to pay taxes at the emirate level.
• Individuals’ earnings, capital gains, and dividends from personal stock and security investments.
• Big multinational firms that satisfy certain criteria will be subject to a new, yet-to-be-determined tax rate.
• Employment income of an individual, excluding income from freelancing, company, commercial, professional, or any other type of economic activity requiring a license or permit.
• Individuals’ real estate investment income, provided it is generated only for personal use and not as a commercial enterprise requiring a business license.
• Income and interest earned by individuals from savings and deposit accounts

Income that is subject to corporate income taxation must still be greater than AED 375,000 in order to be taxable.

WHAT ARE THE CORPORATE TAX COMPLIANCE REQUIREMENTS IN UAE?

Businesses that fall under the corporate tax framework in the UAE must comply with the following requirements:

• Receive a Tax Registration Number by registering with the Federal Tax Authority.
• Keep accounting books and other records that can be used to support the information in your tax return.
• Determine your tax liability, pay it, and file your tax return within nine months of the conclusion of the applicable tax period.
• Any transaction involving connected parties or parties having ties to them should be conducted at arm’s length and in accordance with OECD transfer pricing rules.
• The final UAE corporate tax legislation will include extra compliances that must be carried out by businesses that fall under the scope of the transfer pricing regulations.

Businesses must determine if their current procedures and systems are ready for reporting and compliance under the UAE corporate tax framework in respect to accounting of income and expenditure, inter-company transactions, capital assets, and inventory management, among other things.