In-Depth Understanding of Corporate Tax in the UAE: Rates, Features, Myths!
For entrepreneurs considering setting up a business in UAE, or establishing a company in Dubai, UAE, understanding the implications of the UAE corporate tax is crucial.
In June 2023, the UAE government implemented a federal corporate tax that impacts local and foreign-owned companies operating within the UAE. Companies must annually file tax returns and settle any corresponding tax dues. Additionally, the corporate tax framework includes various exemptions and reliefs. The tax rate is fixed at 9%, and the taxable income is calculated after permissible expenses are deducted.
The corporate tax in the UAE applies to all companies, both locally owned and foreign entities. Yet, there are advantages for businesses operating within free zones, including a favorable corporate tax structure and exemptions from customs duties among others.
Corporate Tax Rates
The UAE Corporate Tax regime introduces a tier system with 3 rates:
- All annual taxable profits up to AED 375,000 shall be subject to tax at 0%.
- All annual taxable profits above AED 375,000 shall be subject to 9% rate.
- All multinational enterprises that fall under the scope of Pillar 2 of the BEPS 2.0 framework (i.e. consolidated global revenues over AED 3.15 billion) shall be subject to different rates as per OECD Base Erosion and Profit-Sharing rules. However, until the Pillar Two rules are adopted by the UAE, multinationals will be subject to CT under the regular UAE CT regime.
What incomes are exempted from the corporate tax?
- Double Taxation Avoidance Treaties (DTAs): The UAE has DTAs with several countries to prevent double taxation of income. This means that businesses that are taxed in the UAE may be able to claim a credit against their tax liability in their home country.
- The employment income of individuals.
- Tax exemptions for certain industries: The UAE government offers tax exemptions for businesses operating in certain industries, such as extractive businesses.
- Other personal income: Dividend income. Rental receipts from UAE real estate investments even if UAE real estate and other investments are held through a private or family trust, subject to certain conditions.
UAE Corporate Tax Regime: misconceptions rectified.
Newly announced, with a lot of nuances to learn and clarify, there are many questions asked about the UAE Corporate Tax. Here, we correct some misinformation about the CT scheme. It’s always advised to reach for a well-informed business setup consultant, like SPC Free Zone, for reliable information about this essential aspect of business setup in the UAE.
Does the CT only apply to companies owned by foreigners?
Corporate tax impacts local and foreign-owned companies incorporated or resident in the UAE, and operating within the country, or foreign entities that have a Permanent Establishment or taxable nexus in the UAE, irrespective of the residence and nationality of the individual founders or (ultimate) owners of the entity.
Are businesses subject to Emirate level taxation exempt from UAE Corporate tax?
Emirate level taxes paid will not be able to be credited against or otherwise reduce the amount of Corporate Tax Payable. Businesses engaged in the extraction of the UAE’s Natural Resources and in certain non-extractive activities that are subject to Emirate level taxation will be exempt from the UAE Corporate Tax, subject to certain conditions. Other businesses may be subject to both Corporate Tax and Emirate level taxation.
Will UAE Corporate Tax replace VAT in the UAE?
No, Corporate Tax is different than VAT. A registered business for VAT will have to pay VAT and Corporate Tax separately. If the business is not registered for VAT it may still have to pay Corporate Tax.
Do I still have to pay service fees to the Federal and Emirate Governments with the corporate tax?
Applicable service fees will still be payable to the Federal or relevant Emirate Government.
However, business setup, licensing, license renewals, and other Government charges that are incurred in the process of business are generally considered deductible expenses for UAE Corporate Tax.
Why choose SPC Free Zone?
SPC offers a fast and easy Sharjah freezone business setup in the UAE. As one of the most centrally located and easily accessible free zones in the region, it’s the ideal ecosystem to start and grow your business successfully with our competitive business setup packages. We help entrepreneurs obtain relevant business licenses and visas for the free zone. With SPC Free Zone, you can also take advantage of up to 20 visa quotas and maximize profits with zero paid-up share capital and 100% foreign ownership.
SPC Free Zone also provides an e-commerce and general trading license for all commercial activities. We aim to give business owners the tools and knowledge they need to navigate their way. Contact us today!
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