Introduction about Corporate tax
According to the UAE Federal Decree-Law No. 47 of 2022 on taxation of corporations and businesses (the “Corporate Tax Law”), businesses will
become subject to UAE Corporate Tax from the beginning of their first financial year that starts on or after 1 June 2023.
What is Corporate tax (CT)?
Corporate tax is a form of direct tax levied on the net income or profit of corporations and other entities from their business.
Objectives of CT
By introducing the CT, the UAE aims to:
• cement its position as a leading global hub for business and investment
• accelerate its development and transformation to achieve its strategic objectives
• reaffirm its commitment to meeting international standards for tax transparency and preventing harmful tax practices.
Scope
CT will apply to:
1. all businesses and individuals conducting business activities under a commercial licence in the UAE
2. free zone businesses (The UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses that
comply with all regulatory requirements and that do not conduct business set up in the UAE’s mainland.)
3. Foreign entities and individuals only if they conduct a trade or business in the UAE in an ongoing or regular manner
4. Banking operations
5. Businesses engaged in real estate management, construction, development, agency and brokerage activities.
Exemptions from CT
Below are the rules regarding exemptions from the 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, CT 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 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.
CT Rate
As per Ministry of Finance, CT rates are:
• O per cent for taxable income up to AED 375,000
• 9 per cent for taxable income above AED 375,000 and
• a different tax rate (not yet specified) for large multinationals that meet specific criteria set with reference to ‘Pillar two’ of the OECD Base
Erosion and Profit Shifting Project.
Federal Tax Authority_(FTA) will be responsible for the administration, collection and enforcement of the CT. FT will soon provide more references
and guides about corporate tax and information on how to register and file returns on its website.
Read FAQs about the UAE’s corporate tax on the website of the Federal Tax Authority.
Text sourced from the website of Ministry of Finance.
About VAT
Value Added Tax (VAT) was introduced in the UAE on 1 January 2018. The rate of VAT is 5 per cent. VAT will provide the UAE with a new source of income which will be continued to be utilized to provide high-quality public services. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
Criteria for registering for VAT
A business must register for VAT if its taxable supplies and imports exceed AED 375,000 per annum.
It is optional for businesses whose supplies and imports exceed AED 187,500 per annum.
A business house pays the government the tax that it collects from its customers. At the same time, it receives a refund from the government on
tax that it has paid to its suppliers.
Foreign businesses may also recover the VAT they incur when visiting the UAE.
How is VAT collected?
VAT-registered businesses collect the amount on behalf of the government; consumers bear the VAT in the form of a 5 per cent increase in the cost of taxable goods and services they purchase in the UAE.
UAE imposes VAT on tax-registered businesses at a rate of 5 per cent on a taxable supply of goods or services at each step of the supply chain.
Tourists in the UAE also pay VAT at the point of sale.
On which businesses does VAT apply?
VAT applies equally on tax-registered businesses managed on the UAE mainland and in the free zones. However, if the UAE Cabinet defines a
certain free zone as a ‘designated zone’, it must be treated as outside the UAE for tax purposes. The transfer of goods between designated zones are tax-free.
On which businesses does VAT apply?
VAT applies equally on tax-registered businesses managed on the UAE mainland and in the free zones. However, if the UAE Cabinet defines a certain free zone as a ‘designated zone’, it must be treated as outside the UAE for tax purposes. The transfer of goods between designated zones are tax-free.
Filing a return for VAT
At the end of each tax period, VAT registered businesses or the ‘taxable persons’ must submit a ‘VAT return’ to Federal Tax Authority. (FTA).
A VAT return summarises the value of the supplies and purchases a taxable person has made during the tax period, and shows the taxable
person’s VAT liability.
Liability of VAT
The liability of VAT is the difference between the output tax payable (VAT charged on supplies of goods and services) for a given tax period and the input tax VAT incurred on purchases) recoverable for the same tax period.
Where the output tax exceeds the input tax amount, the difference must be paid to FTA. Where the input tax exceeds the output tax, a taxable
person will have the excess input tax recovered; he will be entitled to set this off against subsequent payment due to FTA.
How to file VAT return?
You must file for tax return electronically through the FTA portal: services. tax.gov.ae. Before filing the VAT return form on the portal, make sure you have met all tax returns requirements.
When are businesses required to file VAT return?
Taxable businesses must file VAT returns with FT on a regular basis and usually within 28 days of the end of the ‘tax period’ as defined for each
type of business. A ‘tax period’ is a specific period of time for which the payable tax shall be calculated and paid. The standard tax period is:
• quarterly for businesses with an annual turnover below AED150 million
• monthly for businesses with an annual turnover of AED150 million or more.