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Although the UAE (United Arab Emirates) has long been a tax-free hub for commerce, on January 31, 2022, the Ministry of Finance of the UAE announced a Corporate Tax (CT) meant to ensure the UAE remains a competitive economy while supporting growth.
Here’s what you need to know about the UAE’s Corporate Tax.
Effective dates for Corporate Tax in the UAE
UAE’s Corporate Tax (CT) on business profits is set at a rate of 9%. The tax will be effective for financial years starting as follows:
The CT is applicable on or after 1st July 2023.
If your financial year is Your Corporate Tax is applicable from
July – June 1st July 2023
Jan – Dec 1st Jan 2024
Apr – Mar 1st Apr 2024
Corporate tax rate in the UAE
The corporate tax rate is 0% if the company’s taxable income is between 0 and AED 375,000. Above AED 375,000 the corporate tax rate is 9%. That 9% is only charged on income above AED 375,000.
For example, if the net profit of a business after necessary adjustments in compliance with corporate tax law is AED 400,000 tax payable will be 400,000 – 375000 = AED 25,000 x 9% = 2250 AED.
A company that has a taxable income of AED 400,000 would pay AED 2250 in corporate taxes.
Income Tax rate Corporate tax
AED 37500 0% AED 0
AED 400,000 9% AED 2250
Who will pay corporate tax in the UAE
Those who will pay the corporate tax include:
Individuals carrying on business or commercial activities in the UAE
UAE-incorporated legal entities
Foreign entities managed and controlled by UAE
Foreign entities having permanent establishments or UAE-sourced income
Unlimited liability partnerships and unincorporated joint ventures will be flow-through entities for UAE corporate tax purposes and the income will be taxable in the hands of partners or members only
Activities that aren’t charged the corporate tax rate
Not all income will count as taxable income. Individuals will not pay taxes on income from employment, real estate, or personal income that isn’t related to a UAE trade or business. Individual capital gains will also not be taxed.
Foreign investor income from dividends, interest, royalties, and capital gains will also generally not be taxed.
Corporate tax on businesses in Free Zones in the UAE
Businesses in Free Zones will be subject to the corporate tax, but their tax rate will be 0% provided they follow all regulatory requirements. If they do business with mainland UAE they will have to pay the 9% tax.
What should you do to be ready for corporate tax in the UAE
It’s important that you’re prepared for the corporate tax when it takes effect. Here are some steps you can take to make sure you’re compliant with the corporate tax.
Establish your financial year
Develop proper accounting systems such that financial statements can be generated
Review and analyze expenses that potentially will not be admissible
Develop or enhance accounting policies to ensure proper documentation of the transactions
Digitize where possible to make the process easier and more transparent (tools such as Xero will be very helpful)
If you have any questions about the UAE Corporate Tax or how to prepare for it, reach out to us. We’re a trusted Dubai accounting and bookkeeping firm, and we’re here to help you with all your accounting and bookkeeping needs.
