The UAE has carved a distinctive niche for itself when it comes to attracting entrepreneurs as the leading business hub. Having emerged as a popular destination for companies to set up their business operations, the country does have its stringent set of rules and regulations that require diligent guidance and compliance at every step, which can be achieved with the support of corporate tax consultants Dubai. In tandem, it is pivotal for an entrepreneur to intricately understand the rules and regulations, which includes a concrete understanding of the taxes that the company will be liable to pay while operating in UAE. Having said that the landscape of taxes in UAE is permeated by corporate tax and VAT, but in order to seamlessly navigate this new journey it is advised to connect with corporate tax consultants in Dubai.
Overview of Corporate Tax
In simple terms, corporate tax is a form of direct tax that is levied upon the net income or profits of a business, which was previously not levied on enterprises operating in the UAE. However, in 2022, UAE’s Federal Tax Authority issued the Corporate Tax Decree Law with the aim of reforming the UAE’s economy from a fuel-based nation to one with diversified revenue sources. Although the scope of the corporate tax extends to all commercial and business activities across the country, businesses operating in free zones, involved in the extraction of natural resources and individuals earning in their personal capacity, need not pay corporate tax. In the UAE companies are required to pay a 9% tax on their profits as, per their statements after taking into account all eligible deductions and excluding any income that is exempt, from taxation. Under the UAE’s corporate tax regime, the taxable profits are calculated by subtracting all allowable business expenses from the company’s total revenue or income for the relevant period. Under the periphery of common allowable expenses lie wages, rent, utilities, and the cost of goods sold, along with others. Apart from this, it is important to note that 9% corporate tax is only applicable if the taxable value exceeds AED 375,000, and any foreign tax paid will also be deducted from the profit shown in the financial statement.
Assessing the Key Differences Between Corporate Tax and VAT
| Basis of Comparison | Corporate Tax | VAT (Value-Added Tax) |
|---|---|---|
| Tax Base | It is levied upon taxable income or net profits. | It is calculated as a percentage of the value added at each stage of supply. |
| Tax Payers | It is payable by companies and businesses. | It is applicable to all registered businesses. |
| Rate | It is fixed at 9% for taxable income exceeding AED 375,000. | Exempting zero-rated sectors, the standard rate is set at 5%. |
| Collection | It is based on self-assessment through annual returns. | It is based on periodic returns either quarterly or monthly. |
| Filing Process | It is required by the companies to first file taxes and then pay corporate tax on the net profits. | On the other hand with VAT, companies have to charge it to the consumer and then remit it to the FTA. |
Ultimately, both corporate tax and Value Added Tax (VAT) play pivotal roles in bolstering government revenue and are integral components of the nation’s fiscal policy. For enterprises seeking to comprehend the intricacies of these taxation frameworks, securing the guidance of professional corporate tax consultants becomes imperative. For tailored assistance encompassing areas such as tax planning, compliance, audits, international tax, and corporate tax matters in Dubai, A&A Associate LLC stands as a premier service provider in the UAE. Our team of seasoned corporate tax consultants in Dubai is dedicated to delivering comprehensive solutions, ensuring that your business adheres to regulatory requirements and optimizes its financial strategies. Partner with us to benefit from our wealth of experience and unwavering support throughout your business journey.
