Navigating Corporate Tax in the UAE

Yarab A | Updated on: August 22, 2024

Corporate Tax in UAE from 1st June 2023
What's ahead for businesses with proposed corporate tax in UAE?

The authorities in UAE have announced the introduction of corporate tax from 1^st June,23. The law stipulates that a taxable person or business will be subjected to a 9% corporate tax from the start of their first financial year commencing on or after June 1, 2023.

Since its announcement, it has created a buzz among businesses and tax professionals. With this announcement, UAE is all set to become 4^th among the GCC countries to introduce a federal corporate tax.

The introduction of federal corporate tax in UAE aims to further strengthen the country's position as a world-leading hub for businesses and investment and accelerate the strategic objective towards development and transformation. Also, the corporate tax concept helps meet international standards for tax transparency and avoids harmful tax practices.

Given that corporate tax is new in UAE, it is essential for businesses to understand the concept. We have tried to put across some common questions you might have on corporate tax.

Alight! Let's get started.

Corporate Tax in UAE from 1^st June '23 - Top 7 Questions Answered

1. What is corporate tax in UAE?

Corporate tax is a form of direct tax levied on the net income or profit of corporations and other business entities. It is also commonly known as 'Corporate Income Tax' or Business Profits Tax.'

In simple words, it is a tax levied on the net profit made by the businesses. It requires companies to pay a certain percentage of profit as tax.

2. Who should pay corporate tax in the UAE?

All the businesses whose taxable profit (net) is more than 375,000 AED fall under the purview of corporate tax and are required to pay a certain percentage of net profit as corporate tax.

3. What is the rate of corporate tax in the UAE?

The corporate tax rate is at 9% of the net profit made by the businesses. In order extent support to small businesses and start-ups, the corporate tax rate will be '0' % if the net profit is up to 3,75,000 AED

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4. What is the date of implementing the federal corporate tax in UAE?

The date of implementing the corporate tax is effective from the financial year starting on or after 1^st June, 2023.

5. When will the corporate tax law be released by the authorities?

The authorities already released the corporate tax law on 9th December 2020. The UAE corporate tax is made available through a 'Federal Decree-Law no. 47 of 2022 on their official website. To download the UAE corporate tax law, you can visit the Ministry of Finance website.

6. What are the businesses or incomes that are outside the scope of corporate tax?

Given the profit threshold of 3,75,000 AED, all businesses that exceed the threshold have to pay the corporate tax. However, certain types of business or income are exempt from corporate tax. Below is the list of companies or income exempt from corporate tax:

Individuals will not be subject to corporate tax. As a result, any income from employment, real estate, investments in shares, and other personal income unrelated to a trade or business in the UAE will be exempt from corporate tax
Not applicable to foreign investors who do not carry on business in UAE
Corporate tax incentives are currently being offered to free zone businesses that comply with all regulatory requirements will continue.
Capital gains and dividends received by UAE businesses from its qualifying shareholdings are exempt from corporate tax
Not applicable on qualifying intragroup transactions and restructurings

7. How is corporate tax in UAE calculated?

Corporate tax in UAE is calculated at 9% of the net profit shown in the company's financial statements. The 9 % corporate tax will be levied only if the taxable net profit exceeds 375,000 AED. In other words, the net profit up to 3,75,000 AED is taxed at 0%.

For example, If the net profit is 4,75,000 AED, the corporate tax will be 9,000 AED (4,75,000-3,75,000 X 9/100)

What's the way forward for businesses with proposed corporate tax in UAE?

There is a lot to unfold on federal corporate tax as we walk towards d-day 'June,2023', which is miles away from now. Given the proposed implementation date, businesses have plenty of time to prepare for corporate tax.

Given that the corporate tax law is out, there is a lot to study and understand the complexity, one sure thing is that financial statements will now become even more critical for businesses. This is because the net profit on these statements becomes base to arrive at the corporate tax that a business is liable to pay.

The accuracy of the business data will define the correctness of financial statements, ensuring the right amount of corporate tax is determined. Guess, by now, you must have gauged how helpful the business management software will be to your businesses. With the ability to auto-generate financial statements such as profit and loss a/c balance sheet, etc., your business can be tax-ready in no time.

TallyPrime is a business management software that comes with a range of business modules to manage the growing needs of your business. One of the powerful features of TallyPrime is to generate instant business reports related to accounting, inventory and financial statements such as profit and loss account a/c, balance sheet etc.

What's more? Along with helping you to be corporate tax ready, it also comes with complete support for UAE VAT, from generating tax invoices to filing accurate VAT returns.

Being business ready is not what you do on the date of implementing the corporate tax; it's about the things you should do today for a smooth transition to the corporate tax era. One thing that should be on top of your list is to have the right business management software, not only for corporate tax but also to manage your business more efficiently than before.

Yet to experience TallyPrime? Book a free demo, and we are sure you'll be delighted to see how TallyPrime adapts to your business.