What is Corporate Tax (CT)?
Corporate tax means tax on a company’s profits. It is paid by the businesses per their
earnings. This tax ensures companies contribute fairly to the economy while following
international tax compliance laws and maintaining transparency standards. Corporate Tax registration in the UAE is mandatory for businesses earning a taxable income. Early registration helps avoid penalties and ensures smooth operations.
When Was Corporate Tax Introduced in the UAE?
The UAE’s Corporate Tax was announced in January 2022. The tax applies to businesses whose fiscal years began on or after June 1, 2023. The corporate tax is implemented to fulfill international obligations. It ensures fair tax practices and prevents companies from avoiding taxes through international loopholes. It also encourages transparency in financial reporting. It covers Base Erosion and Profit Shifting (BEPS) measures. It also promotes economic stability by diversifying and expanding the tax base.
10 Key Insights About Corporate Tax in the UAE
Businesses based in the UAE are now required to adjust to new tax rules which impact upon the way they conduct their business and plan their finances. Here are 10 key insights about corporate tax in the UAE, to help you better understand these changes.
1. Applicability Threshold
Corporate Tax in UAE applies only to businesses having a Net Profit (NP) more than AED375,000 (USD 100,000). The tax applies only if the threshold is always met, which excludes small businesses and startups from paying the tax. For example, if a business earns an annual Net Profit of AED 300,000, Corporate Tax does not apply to it. However, such businesses are still required to register for Corporate Tax to ensure compliance with the regulations. If the Net Profit is AED 450,000, tax will be calculated on the amount which exceeds AED 375,000, which is AED 75,000. In this case, the tax payable would be AED 6,750. It is calculated by applying the 9% tax rate to the taxable profit.
| Business | Annual Net Profit (AED) | Taxable Amount (AED) | Corporate Tax Rate | Tax Payable (AED) |
|---|---|---|---|---|
| Example #1 | 450,000 | 450,000 - 375,000 = 75,000 | 9% | 75,000 × 9% = 6,750 |
| Example #2 | 600,000 | 600,000 - 375,000 = 225,000 | 9% | 225,000 × 9% = 20,250 |
2. Tax Rates
The UAE Corporate Tax system adopts a structured approach to accommodate different business sizes and profit levels. If taxable income is below AED 375,000—the smaller businesses will not pay tax at all, that is why there is a 0% tax rate for this level. A 9 percent tax rate is applied to taxable income above AED 375,000. Moreover, the minimum corporate tax rate worldwide is 15% and applies to the multinational enterprise having a consolidated income above EUR 750 million. It follows international tax standards.
| Tax Rate | Applicable To |
|---|---|
| 0% Tax Rate | Taxable income up to AED 375,000 |
| 9% Tax Rate | Taxable income exceeding AED 375,000. |
| 15% Global Minimum Tax | Multinational enterprises with consolidated revenues of EUR 750 million or more. |
3. Who Is Subject to Corporate Tax?
In the UAE, Corporate Tax applies to various entities and individuals. Onshore companies which are incorporated in the UAE mainland, are subject to Corporate Tax. Corporate Tax for Free zone companies also applies liable if they earn non-qualifying income, as outlined in Section 5. Foreign entities are taxed if they have a permanent establishment in the UAE. Additionally, natural persons engaged in licensed business or commercial activities are also subject to Corporate Tax.
4. Exemptions from Corporate Tax
Some entities in the UAE get full or partial Corporate Tax exemptions. This helps support key sectors and national goals. Exemptions apply to government entities and their subsidiaries. Government-controlled organizations doing specific activities are also included. Charities and public benefit groups recognized by UAE law qualify too, subject to certain conditions. Investment funds and REITs meeting certain rules can get exemptions. Extractive businesses in natural resources are exempt from Corporate Tax if they meet the specified conditions.
5. Deductible Expenses
Businesses in the UAE can deduct expenses that are incurred on earning taxable income. Salaries, gratuities, training, rent, utilities and maintenance are deductible costs. Marketing costs like advertising and promotions are also considered deductible. Personal or non-business expenses cannot be deducted. For example, if a company spends AED 100,000 on client entertainment, only 50% (AED 50,000) can be deducted.
6. Filing and Payment Requirements
According to UAE Corporate Tax rules, it is mandatory that business file their annual tax return online. The deadline is within 9 months after the end of the financial year.
For example:
If a business fiscal year runs from January to December 2024, the tax return must
be filed by September 30, 2025.
If a business fiscal year runs from April 2024 to March 2025, the tax return must be
filed by December 31, 2025. File on time to stay compliant.
Fiscal Year Filing Deadline
January 2024 to December 2024 September 30, 2025
April 2024 to March 2025 December 31, 2025
7. Loss Relief
Loss Relief is a way which means taxpayers in the UAE use their loss to reduce future taxable income. They can carry forward tax losses if they follow certain rules. For example, a loss of AED 100,000 in 2024 can offset taxable income in 2025. That tends to lower the Corporate Tax for that tax year. However, only up to 75% of the profit can be adjusted in the next year tax period.
8. Compliance and Penalties
Missing out on following the UAE Corporate Tax rules may lead to big penalties. Businesses that fail to register for Corporate Tax within 3 months from the date of incorporation will be subject to a fine of AED 10,000. If they do not file a tax return, a penalty of AED 1,000 per month applies that can go up to AED 25,000. Late tax payments also carry a daily penalty of 1% on the unpaid amount. Timely compliance is important to avoid these fines.
9. Tax Residency Certificate (TRC)
A Tax Residency Certificate (TRC) is important for claiming treaty benefits. It proves tax
residency in the UAE and allows access to benefits under tax treaties.
10. Transition Period for Businesses
Businesses incorporated after June 2023 are required to register for Corporate Tax
immediately upon incorporation. Existing businesses should now be fully compliant, as the transition period to adapt to the new tax regulations has passed.
What Are Free Zone Companies?
Free Zone Companies in UAE operate within special economic zones that provide tax
and regulatory advantages. These companies can benefit from a 0% Corporate Tax rate on qualifying income. However, this is only possible if they meet the conditions outlined in the UAE Corporate Tax Law. Qualifying income includes income derived from activities conducted within the Free Zone or transactions with entities outside the UAE. There are currently 46 free zones in the UAE, each managed by its respective Free Zone Authority, which serves as the licensing authority. Free Zone Companies must maintain proper compliance with the Corporate Tax Law. They should accurately record qualifying income and meet all registration and reporting requirements.
Practical Tips for Businesses
The corporate tax in the United Arab Emirates is a big change for its economy. Businesses must adapt to the new rules. Mainland and Free Zone companies need to understand and follow these regulations to grow and stay competitive. Here are some tips to manage the transition smoothly:
Understand Tax Obligations: Find out whether your business will be taxed under the UAE corporate tax laws. Make sure which type of income is taxable, like non-qualifying income for Free Zone entities or income from onshore companies. It is important that you comply with the rules so you don’t get penalties – knowing these rules will help.
Maintain Accurate Records: Accurate bookkeeping services are essential for tax
compliance. They help businesses track income, expenses, and transactions efficiently. It ensures a smooth filing process, accurate deductions, and helps you avoid complications during audits.
Engage Professional Support: Corporate Tax regulations can be hard to understand,
especially for new businesses. By hiring professional tax consultants, you get expert
guidance on compliance and filing. They help prepare accurate tax returns, find tax-saving opportunities, and make the filing process easy. The risk of non-compliance is reduced, and operations continue well.
Review Free Zone Activities: Free Zone companies must determine if their activities qualify for the 0% tax rate on eligible income. Free Zone authorities establish specific operational criteria that businesses must follow. Failure to comply with these rules may result in additional tax liabilities and reduced profitability.
Conclusion
Corporate tax rules must be followed by businesses with the help of proper preparation and expert guidance. You simply have to know taxable income, deductions, and understand. what deadlines you have to meet A&A Associate provides tax registration, bookkeeping, and accounting services. Contact us today to manage your tax obligations efficiently and ensure long-term success! Call us at +971 54 793 9972 or email us at enquiry@aaconsultancy.ae .
