The UAE has long been known for its business-friendly tax policies, with many companies operating in the region benefiting from zero corporate tax rates. However, with recent developments, the UAE government has announced the introduction of corporate tax regulations starting in 2025.
If you’re an entrepreneur, it’s essential to understand how your business might be impacted.
So, let’s break down the new corporate tax rules, what businesses need to know, and how you can prepare for these changes in 2025.
What is the Corporate Tax in UAE?
The UAE’s new corporate tax will be levied on business profits, marking the first time in history that businesses will pay a tax on their profits. Starting in 2025, businesses will need to adjust to the new UAE corporate tax law based on their annual profits.
The corporate tax rate will be 9% for businesses with profits exceeding AED 375,000. Although this is a new shift, it’s considered a relatively low rate compared to global standards, which still makes the UAE an attractive business hub for entrepreneurs around the world.
Key Features of the New Corporate Tax Rules
Let’s take a closer look at the key features of the UAE’s new corporate tax system, particularly if you’re wondering how to calculate corporate tax in UAE.
- 9% Corporate Tax Rate
The standard rate of 9% applies to businesses with profits greater than AED 375,000. For businesses that generate lower profits, there will be no corporate tax imposed, which can be advantageous for small and medium enterprises (SMEs) and startups. - Global Tax Harmonisation
The UAE is introducing corporate tax in line with international tax standards, specifically the OECD’s Base Erosion and Profit Shifting (BEPS) framework. This ensures that businesses operating in the UAE comply with global tax rules, helping to combat tax avoidance and increase transparency. - Exemptions for Certain Activities
Certain businesses and activities may be exempt from the corporate tax, such as those in free zones or companies engaged in specific sectors, such as oil and gas production or real estate. However, businesses in these sectors will need to carefully assess the exemptions to ensure they are eligible. - Holding Companies
Another important feature is the treatment of holding companies. Profits from holding companies will generally be exempt from corporate tax, which can benefit investors looking to manage their business interests in the UAE more efficiently. - Transfer Pricing Rules
To align with international standards, the UAE will also implement transfer pricing rules. This means that businesses with related parties must ensure their transactions are conducted at arm’s length, meaning that the prices charged between related companies must reflect market rates. - Deductibility of Expenses
Businesses will be allowed to deduct certain operating expenses from their taxable income, which can include wages, rent, and other business-related costs. This helps lower the overall taxable income and can reduce the tax burden for businesses. - VAT Remains Unchanged
While corporate tax is being introduced, the existing VAT system will remain in place. Businesses will still need to charge and pay VAT at the current rate of 5% on eligible goods and services. The introduction of corporate tax doesn’t change VAT obligations.
Who Will Be Affected by the Corporate Tax?
The corporate tax will primarily impact businesses that generate profits above AED 375,000 annually. This includes:
- Large corporations: Businesses with substantial profits, particularly in sectors like retail, hospitality, finance, and construction.
- Small and medium enterprises (SMEs): While SMEs generating less than AED 375,000 will be exempt from the corporate tax, they still need to stay compliant with VAT regulations.
- Free zone businesses: Companies operating in designated free zones may still qualify for tax exemptions depending on the nature of their activities.
It’s also important to note that businesses involved in activities such as oil and gas extraction, real estate, or those governed by sector-specific regulations may have different tax rates or exemptions to be in line with UAE corporate tax compliance.
Preparing Your Business for Corporate Tax in 2025
With the new tax system coming into effect in 2025, it’s essential for businesses to begin preparing now. Here are some key steps to ensure you’re ready:
- Review Your Financial Records
Start by assessing your company’s financial health and profitability. Ensure your corporate tax UAE registration and financial records are up-to-date, accurate, and compliant with accounting standards. - Consult a Tax Advisor
Navigating the new corporate tax rules can be complex, so it’s a good idea to consult a tax advisor or premium services such as SPC Plus. They can help you understand the exemptions, deductions, and the most tax-efficient structure for your business. - Implement Proper Accounting Practices
As the new corporate tax system will require businesses to keep accurate financial records, now is the time to implement or update your accounting practices. - Consider Restructuring Your Business
If your business is currently structured in a way that may not be tax-efficient under the new rules, you might want to consider restructuring. - Stay Updated on Regulations
The UAE government is likely to release additional regulations and clarifications as the corporate tax system approaches in 2025. Stay informed by following official announcements.
Conclusion
The UAE’s introduction of corporate tax in 2025 represents a major shift in the country’s tax environment, but it remains one of the most attractive business destinations due to its relatively low tax rate and strategic location. For businesses in the UAE, it’s important to understand these new tax rules and begin preparations to ensure compliance!
