Corporate Tax Registration

The United Arab Emirates introduce a federal Corporate Tax (CT) on business profits that will be effective for financial years starting on or after 1 June 2023. The UAE CT regime has been designed to incorporate best practices globally and minimize the compliance burden for UAE businesses.

The CT rate in UAE is among the most competitive in the world and the lowest in the GCC – where Bahrain has now become the only country without a CT regime. it has been made clear that the regime of CT in UAE will follow best global practices and is expected to be implemented with easy CT compliance requirements.

CTis a form of direct tax levied on the net income or profit of corporations and other entities from their business. Such taxes are calculated based on the company’s accounting net profit after making adjustments for certain items as set out in the UAE Corporate Income Tax Law.

UAE corporate income tax is levied on a company’s adjusted net income in excess of AED 375,000. A company only needs to file one CT return for a fiscal year and does not need to prepay taxes or prepare a preliminary tax return.

The UAE Federal CT Law, effective for financial years commencing on or after 1 June 2023, will apply in all Emirates and will apply to all business and commercial activity.

TAX RATE

UAE corporate Tax applicable at the following rate:

0 % Tax on

  • Taxable income not exceeding AED 375,000
  • Qualifying Income of a Qualifying Free Zone Person*

9 % Tax on

  • Taxable income exceeding AED 375,000
  • Non-Qualifying Income of a Qualifying Free Zone Person

Exempted from corporate tax

  1.  UAE Government Entity;
  2. UAE Government Controlled Entity;
  3. Person engaged in an Extractive Business in the UAE;
  4. Person engaged in a Non-Extractive Natural Resource Business in the UAE;
  5. Qualifying Public Benefit Entity;
  6. Qualifying Investment Fund;
  7. Public pension or social security fund, or a private pension or social security fund that is subject to regulatory oversight of the competent authority in the State and that meets any other conditions that may be prescribed by the Minister;
  8. Juridical person incorporated in the State that is wholly owned and controlled by certain Exempt Persons; and
  9. Any other Person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister.

Who subject to Corporate Tax?

Every Business has mandatory obligation to register for UAE CT from June 2023. Each business or individual conducting business activities are subject to scope of CT

Corporate Tax applies to the following “Taxable Persons”:

  • UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE.
  • Natural persons (individuals) who conduct a Business or Business Activity.
  • Non-resident foreign legal entities that have a Permanent Establishment in the UAE.

Taxable Person

  • A “Resident Person” is taxed on income derived from both domestic and foreign sources

1. Companies and other juridical persons/entity that are incorporated in UAE (e.g., LLC, PJSC etc.).

  1. Individual/Natural person who is engaged in a business or business activity in the UAE
  • A “Non-Resident Person” will be taxed only on income derived from sources within the UAE

Non-Resident person in the UAE and has:

– Have a Permanent Establishment in the UAE;

– Derive State Sourced Income.

Taxable Income

Taxable Income shall be the accounting income as per the financial statements for that period after adjustments for certain items as defined in the Corporate Tax Law.

For UAE CT purposes, the financial statements of UAE entities and other businesses should be prepared in accordance with accounting standards accepted in the UAE. International Financial Reporting Standards (IFRS) is the most frequently used accounting standard in the UAE.

The accounting net profit need to be adjusted for the items prescribed in the UAE Corporate Tax Law, including:

1. Unrealized gains/losses (subject to the election made regarding the application of the realization principle);
2. Exempt income such as dividends.
3. Intra-group transfers.
4. Deductions which are not allowable for tax purposes.
5. Adjustments for transactions with Related Parties and Connected Persons.
6. Any incentives or tax reliefs.
7. Any other adjustment specified by the Minister.

Exempt Income

1. Dividends and other profit distributions received from UAE incorporated or resident legal persons;
2. Dividends and other profit distributions received from a  Participating Interest in a foreign juridical person
3. Certain other income (e.g., capital gains, foreign exchange gains / losses and impairment gains or losses) from a Participating Interest
4. Income from a foreign branch or permanent establishment where an election is made to claim the “Foreign Permanent Establishment” exemption
5. Income earned by non-residents from the operation or leasing of aircrafts or ships in international transportation where certain conditions are met

Deductible expenses 

In principle, all legitimate business expenses incurred to derive taxable income will be deductible,

Following are Non-deductible expenses:

Expenditure incurred in deriving exempt income

    – Non- business-related expenditure & losses

    – 50% of entertainment expenditures related to customers, shareholders, suppliers, and other business partners.

    – Fines & Penalties excluding compensations.

Certain Donations & Grants Bribes or other illicit payments

   – Dividends, profit distributions or benefits paid to owner of Taxable person.

   – Corporate Tax, Recoverable Tax, Foreign Tax

TAX Period

According to the UAE corporate tax, the taxable period is the period during which a company must report its taxable income and calculate the tax due.

Generally, the tax year shall be the Gregorian Calendar year i.e., January to December or any other 12-month period for which financial statement is prepared by the Taxpayer. This means that companies must prepare and file tax returns for each taxable period within four months after the end of the year.

Tax Period for companies with a financial year from 1 June to 31 May.

The first tax period is From June 2023 to May 31, 2024.

the corporate tax filing deadline will be February 28, 2025.

Tax Period for companies with a financial year from 1 January to 31 December.

The first tax period is from 1st January 2024 to December 31, 2024.

The corporate tax filing deadline will be September 30, 2025.

Free Zone Person

The UAE has established over 60 Free Economic Zones to encourage global investors and companies to do business in the country. Thousands of investors have set up businesses in the UAE’s free zones to take advantage of zero taxes, 100% ownership and generous profit repatriation policies.

A Free Zone Person that is a Qualifying Free Zone Person can benefit from a preferential Corporate Tax rate of 0% on their “Qualifying Income” only.

In order to be considered a Qualifying Free Zone Person, the Free Zone Person must:

Maintain adequate substance in the UAE.
– Derive ‘Qualifying Income’.
– Not have made an election to be subject to Corporate Tax at the standard rates.
– Comply with the transfer pricing requirements under the Corporate Tax Law
.

If a Qualifying Free Zone Person fails to meet any of the conditions, or makes an election to be subject to the regular Corporate Tax regime, they will be subject to the standard rates of Corporate Tax from the beginning of the Tax Period where they failed to meet the conditions.

According to the Corporate Tax Law of the UAE, A Qualifying Free Zone Persons (FZPs) will be subject to the following tax rates:

  • 0% on their income that meets the qualifying income
  • 9% on their income that does not meet the qualifying income

Qualifying income

  1. Income from transaction with other free zone person, except income from excluded activity
  2. Income from transaction with a Non-free Zone person on Qualifying activities only
  3. Any Other Income (Excluded activity and NQA of NFZ) satisfy de minimis requirement

Minimum Requirement

Non qualifying revenue, ie: income from ‘excluded activities’ and from activities (other than ‘qualified activities’) with non-free zone, does not exceed 5% of total revenue or AED 5 million, whichever is less

The ministry listed nearly a dozen qualifying activities which include

  • Manufacturing of goods or material
  • Processing of goods or material
  • Reinsurance services
  • Holding of shares and other securities;
  • Ownership, management and operation of ships
  • Fund management services
  • Wealth and investment management services
  • Headquarter services to related parties
  • Treasury and financing services to related parties
  • Financing and leasing of aircraft including engines and retables
  • Distribution of goods or materials in or from a designated zone
  • Logistics services
  • Any ancillary activities to the activities listed above

Excluded activities

  • Transactions with natural persons
  • Regulated banking
  • Insurance
  • Financing and certain leasing activities
  • Ownership or use of intellectual property assets
  • Ownership or use of UAE immovable property

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