FAQ related to corporate tax in the UAE.
Recently corporate tax has been a hot topic for all international businesses established in the UAE. The UAE government released the first Federal Decree-Law No. 47 on the Taxation of Corporations and Businesses last year in December 2022.
The authorities state the reason for implementing the corporate tax is to establish UAE as a leading global business and investment hub. Further, it states that implementing corporate tax will accelerate the businesses in the UAE and help achieve the strategic objectives of the UAE government. In this blog, we have stated the most frequently asked question regarding corporate tax implementation by our clients.
1. What is corporate tax?
A corporate tax is a direct tax imposed on a corporation’s profits or net income from its business. In simple we could say Corporate Tax is imposed on Taxable Income (Revenue minus business expenses) earned by a Taxable Person within a Tax Period (Financial Year).
2. Are there any corporate tax exemptions?
Yes, there are a few exemptions. The FTA website indicates the below businesses are exempted from corporate tax.
- Businesses engaged in the extraction of natural resources are exempt from CT as these
- businesses will remain subject to the current Emirate-level corporate taxation.
- Dividends and capital gains earned by a UAE business from its qualifying shareholdings will
- be exempt from CT.
- Qualifying intra-group transactions and reorganizations will not be subject to CT, provided the necessary conditions are met.
Additionally, corporate tax will not apply to:
- An individual earnings salary and other employment income, whether received from the public or the private sector.
- Interest and other income earned by an individual from bank deposits or saving schemes.
- A foreign investor’s income is earned from dividends, capital gains, interest, royalties, and other investment returns.
- Investment in real estate by individuals in their personal capacity
- Dividends, capital gains, and other income earned by individuals from owning shares or other securities in their personal capacity.
3. How much should I pay for income tax on a mainland business?
According to the Ministry of Finance, 0% will be imposed for mainland businesses making less or equal to AED 375,000 annually on the taxable income as a relief to small businesses. 9% will be imposed for mainland businesses making more than AED 375,00 annually on the taxable income.
4. Does Free Zone-based companies subjected to paying corporate tax?
Yes, Free Zone companies are subjected to corporate tax. The authorities have divided the free zone corporate income into two sections qualifying income and not qualifying income. The corporate tax will remain the same for free zone companies, same as the mainland companies accept the taxation will be implied only on the not qualified income. If your not qualified income alone surpasses AED 375,000 you will be imposed with 9% of corporate tax.
The authorities will soon release what are the qualifying and not qualifying income.
5. Can we deduct corporate expenses before paying corporate taxes?
The answer is yes. Generally, business expenses can be deducted from the total revenue income of the company. However, note that expenses that are deductible under general accounting rules may not be fully deductible under corporate tax law in the UAE. For more information contact our professional support.
6. What is the commencement date of imposing corporate tax?
As per the law, corporate tax will become effective for corporate entities starting their financial year from 1 July 2023 and will be effective for other corporate entities once they start their financial year respectively. However, it is mandatory to register for corporate tax immediately.
7. How do I register for the corporate tax?
All private businesses are mandatory to register the corporate tax. Corporate tax will be directly administrated, collected, and controlled by the FTA (Federal Tax Authority) which means you need to register with the FTA to file the corporate tax. Keep in mind there will be more information on the FTA’s website soon regarding corporate tax, including references and guides about registering and filing returns.
8. What should I do to comply with the corporate tax?
There are 3 factors that your business needs to perform to ensure that you comply with the corporate tax in the UAE.
- Register for the corporate tax
Despite your income or the state of your business, it is mandatory to register for corporate tax. Even if you are registered for VAT still it’s mandatory to register for the corporate tax. For new users visit the Federal tax Authority website (https://eservices.tax.gov.ae/#/Logon) and create a user. Once the user is created you can register to corporate tax. If you have an account with the federal tax Authority (ex. VAT) use the existing logins to register for the corporate tax. If you require further assistance, please contact our team and we will assist to register for the corporate tax.
- Maintain and manage your company account records
Ensure to do a comprehensive audit before the new financial starts and make sure to record/maintain all your financial records after starting the financial year.
- Submit the corporate tax file to the Federal Tax Authority (FTA)
Even if your business is exempted or gets any tax relief from paying corporate tax still you are requiring to submit a file for the FTA after the end of each financial year (First Taxable Period).
9. Do I get a particular period to file the corporate tax?
Yes. You are required to file the Corporate Tax return within 9 months from the end of the relevant financial year. For instance, if your financial year starts on the 1st of January then you are required to submit the corporate tax file (from the 1st of January 2024 – the 31st of December 2024) after the 31st of December 2024 and before the 31st of September 2025.
Hope this FAQ might have brought certain clarifications and understanding regarding corporate tax in the UAE. For more details, please contact us at +971-6-574-8665 or email your inquiry to firstname.lastname@example.org and our team of professionals will be glad to assist you. Leave the hassle of corporate tax with us. Contact us for a free consultation.