CORPORATE TAX IN UAE

The rate of corporate tax in the UAE is one of the most competitive tax rates in the Middle East. Availing of corporate tax advisory services in Dubai will help entrepreneurs to understand the rate of corporate tax applicable to their business model. The UAE corporate tax will be levied on the annual taxable income of businesses in the following manner:

• 0%, for taxable income not exceeding AED 375,000
• 9%, for taxable income exceeding AED 375,000

Businesses can consult with corporate tax consultants in the UAE to verify whether they are exempted from the scope of the corporate tax regime. The following persons are exempted from the UAE corporate tax regime:

1. The UAE Federal Government and Governments of the Emirates, their departments, authorities and public institutions
2. UAE companies wholly owned by the Government that conduct a sovereign or mandated activity and that are listed in a Cabinet Decision
3. Companies engaged in the extraction and exploitation of UAE natural resources that come within the scope of Emirate-level taxes
4. Charities and public benefit organisations listed in a Cabinet Decision
5. Public & regulated private social security and retirement pension funds
6. Investment funds subject to certain conditions

A legal entity incorporated in the UAE will be considered a resident as per corporate tax law in the UAE. Foreign companies will be treated as residents under the UAE corporate tax law if it is effectively managed and controlled in the UAE. A company will be considered effectively managed and controlled in the UAE if its decision-makers or directors make the key management and commercial decisions in the UAE. Talk to our corporate tax advisors in Dubai to determine the residence/non-residence status.

Non-residents will be subject to corporate tax in the UAE on,

• Taxable income earned from their Permanent Establishment in the UAE; and
• Income sourced in the UAE

The following types of income are exempted from the UAE corporate tax regime. However, it is recommended to consult with corporate tax consultants in Dubai before making any tax-related decisions:

• A UAE corporate shareholder will be exempt from CT on dividends received, and capital gains earned from the sale of shares of a subsidiary company
• All domestic dividends earned from UAE companies, including dividends paid by a Free Zone Person that benefits from the 0% CT regime
• Dividends paid by foreign companies and capital gains from the sale of shares in both UAE and foreign companies will be exempted if certain conditions are met
• UAE companies are allowed to claim a foreign tax credit for taxes paid in the foreign branch country or elect to claim an exemption for their foreign branch profits

Businesses that are subject to tax will be required to apply for corporate tax registration in the UAE with the Federal Tax Authority (FTA). They should also obtain a Tax Registration Number within a prescribed period. Businesses that cease to be subject to the corporate tax must apply for corporate tax deregistration in the UAE. The application should be filed within three months from the date of cessation or liquidation. Corporate tax consultants in Dubai can assist businesses with tax registration and deregistration.

Both Natural Persons and Legal Persons will fall within the scope of corporate tax in the UAE. Natural persons who will be subject to the corporate tax regime include sole establishments or proprietorships and individual partners in an unincorporated partnership who carry out business or commercial activity in the UAE. However, there will not be a parallel tax on the income of natural persons or individuals.

Legal Persons include the UAE companies and other types of legal persons incorporated in the UAE. Foreign Legal Persons having a permanent establishment in the UAE or earning income in the UAE will also fall within the scope of corporate tax. Legal Persons who are subject to the UAE corporate tax regime include Limited Liability Companies (LLC), Private Shareholding Companies (PSC), Public Joint Stock Companies(PJSC), and entities established under the laws of UAE laws that have separate legal personalities. Businesses can seek the advice of corporate tax consultants in Dubai to assess the applicability of corporate tax on their profits.

Free zone persons, which means the companies and their branches registered in a UAE free zone, will fall within the scope of corporate tax. Such free zone businesses will be required to meet corporate tax filing requirements in the UAE. However, a free zone business can continue to receive tax incentives if it complies with all the regulatory requirements. Free zone companies can avail of corporate tax services in Dubai to check if they can receive tax incentives.

Meanwhile, the following conditions are also applicable in terms of corporate tax on UAE free zone businesses:

A free zone person can enjoy a 0% corporate tax rate on income earned from transactions with businesses located outside of the UAE

1. Free zone businesses can benefit from a 0% corporate tax rate on income earned from trading with businesses out of the UAE and businesses operating in the same or any other free zone
2. If a free zone business has a mainland branch, a 9% corporate tax rate will apply to its income sourced from the mainland. However, its other income will continue to be subject to a 0% corporate tax rate
3. It is common for a free zone person without a mainland branch to earn income from its business with the UAE mainland. In such cases, it can continue to benefit from the 0% CT rate the mainland-sourced income is classified as ‘passive’ income’ such as interest, royalties, dividends and capital gains from owning shares in a mainland company
4. Income earned from the business transactions between Free Zone Persons and their group companies located in mainland UAE will be subject to 0% corporate tax. However, payments made by the mainland group company to the free zone person will not be deemed as a deductible expense
5. A free zone person operating in a UAE VAT Designated Zone is entitled to a 0% corporate tax rate on income earned from the sale of goods to UAE mainland businesses that are the importer of record of those goods
6. A free zone person earning any other mainland sourced income will be disqualified for the 0% corporate tax benefit in respect of all their income
7. If a Free Zone Person benefits from the 0% corporate tax regime in respect of mainland sourced income, such income will be within the scope of withholding tax at a 0% rate

Taxable income under the UAE corporate tax law will be calculated by using the accounting net profit (or loss) position in the financial statements. IFRS standards will form the basis of corporate tax assessment. However, the UAE corporate tax law will permit businesses to use alternative financial reporting standards to determine the taxable income, which is expected to accommodate and reduce compliance costs for taxpayers such as start-ups and SMEs. Hiring the best corporate tax advisors in the UAE is advisable to determine taxable income accurately.

A UAE resident group of companies can form a corporate tax group. It will be treated as a single taxable person provided the parent company holds at least 95% of the share capital and voting rights of its subsidiaries. However, neither the parent company nor any of its subsidiaries should be an exempt person or a Free Zone Person that benefits from the 0% CT rate. Furthermore, all the members of the group should use the same financial year. Corporate tax advisors in Dubai can help companies to form a tax group.

A business is required to prepare and file only one UAE corporate tax return and other related supporting schedules with the FTA for each tax period. Businesses will not be required to file a provisional Corporate Tax return in the UAE and make advance corporate tax payments. Consult with corporate tax advisors in Dubai to know further about the administrative requirements. Furthermore, businesses need to adhere to the following conditions:

• Businesses must submit the tax return along with supporting documents to the FTA within (9) nine months of the end of the relevant Tax Period
• Payments to settle the corporate tax liability for a tax period must be made within (9) nine months of the end of the relevant Tax Period
• A taxpayer can apply for a tax refund request to the FTA if it can demonstrate that a corporate tax refund may be due