Corporate Tax in UAE: A Guide to Non-Taxable Income & Exempted Entities

The UAE corporate tax (CT) is set to come into force from June 2023, prompting investors to assess whether or not their businesses would come under its ambit. Carrying out corporate tax assessments with the help of tax consultants in Dubai will help the investors to be adequately prepared when the tax comes into effect next year. Since the government is yet to issue a UAE corporate tax law, the current assessments are based on the initial information supplied by the Ministry of Finance and Federal Tax Authority (FTA).

As per the primary information, all businesses have been included within the scope of corporate tax in the UAE. However, certain types of income have been categorised as no-taxable and exempt. We will discuss here what types of income are exempt or excluded from the scope of UAE corporate tax. Read ahead to know further about it.

Scope and Rate of UAE Corporate Tax

The new corporate tax applies to all businesses and commercial activities except for the exempted entities. The government considers all the activities are undertaken by a legal entity as ‘business activities and therefore they fall within the scope of UAE corporate tax. The government will impose a corporate tax at the rate of 9% on taxable income above AED 375,000.

However, a tax rate of 0% will apply for taxable income up to AED 375,000. Moreover, a different tax rate will apply for multinationals that meet specific criteria in line with the Global Anti-Base Erosion Model Rules (Pillar Two) of the OECD Base Erosion and Profit Shifting project. Tax agents in Dubai can advise you further on the corpora tax scope and rates.

Non-taxable Income under the UAE Corporate Tax

Not all income comes under the purview of the corporate tax in the UAE. The Ministry of Finance has issued the list of no-taxable income in the UAE. However, it’s advisable to determine whether the income is no-taxable with the help of tax consultants in Dubai. The following income is non-taxable in the UAE:

  • Salaries of individuals or income earned through employment will not be taxed under the UAE corporate tax.
  • The investments made by individuals in real estate in their personal capacity will not be taxed under the UAE corporate tax. However, this applies only if the individual is not under an obligation to obtain a commercial license or permit to carry out such activity in the UAE.
  • Dividends, capital gains, and other income earned from owning shares or other securities in a personal capacity will not be taxed under the corporate tax in the UAE.
  • The UAE will not levy corporate tax on interest and other income earned by an individual from bank deposits or saving schemes.

Other Types of Income Exempt from Corporate Tax

As per the UAE Ministry of Finance, the following types of income will be exempt from the UAE corporate tax:

  • The dividends and capital gains earned by the businesses in the UAE from qualifying shareholdings. A qualifying shareholding means an ownership interest in a UAE business or a foreign company that satisfies specific conditions, which will be stated in the upcoming UAE corporate tax law
  • Qualifying intra-group transactions and reorganizations will be exempt from the corporate tax in the UAE if the necessary conditions are met

Taxability of Income Earned by Freelancers

The taxability of income earned by freelancers is a matter of curiosity as the Ministry of Finance has stated that income earned through employment will not be taxed under the UAE corporate tax. However, corporate tax will apply to income earned from activities carried out under a freelance license or a freelance permit. It is also important to note that the freelancer won’t be required to pay corporate tax if their annual net income doesn’t exceed AED 375,000. Freelancers can consult with tax agents in Dubai to assess the taxability of their income.

Corporate Tax on Free Zones

Companies operating in free zones will be subject to the UAE corporate tax. However, free zone businesses can continue to avail the current tax incentives if they comply with all regulatory requirements. Yet, free zone companies that conduct business in the mainland will have to pay the UAE corporate tax.

Taxability of Oil and Gas Industries

Businesses operating in the UAE oil and gas industries or businesses engaged in the extraction of natural resources will not be subject to the UAE corporate tax. The new UAE corporate tax is levied at the Federal level and hence such businesses will be exempted. However, these businesses are already subject to corporate tax at the emirate level and will remain subject to the same.

Consult with the Best Tax Agents in Dubai, UAE

Even though the UAE corporate tax will come into effect only in 2023, businesses need to be updated about the tax requirements and be prepared for it. Learning about the taxability of their businesses will help the investors prepare and embrace the new tax without any struggle. Tax agents in Dubai such as Jitendra Chartered Accountants (JCA) can act as an expert corporate tax advisors for the investors. JCA is a leading tax agent approved by the FTA and possesses sufficient resources to advise on the UAE corporate tax. JCA can make the transition to a new direct tax regime hassle-free and smooth.