UAE to Introduce Corporate Tax in 2023: Key Features You Must Know

The UAE is set to introduce the corporate tax in 2023 in a bid to modernise its economy in accordance with international norms. The introduction of corporate tax in the UAE represents a paradigm shift as the country has long been known to be a tax-free commercial hub. To date, the government levied corporate tax from banks and oil companies. However, the new tax will cover all businesses subject to certain conditions and exceptions. Even though the government is yet to issue a law related to corporate tax, it’s advisable to consult with FTA approved tax agents in the UAE to keep abreast of the developments.

Since corporate tax in the UAE is new legal compliance, businesses will be keen on obtaining a clearer picture regarding its features and requirements. Getting prepared in advance for corporate tax in the UAE will help the businesses to ensure proper compliance. Here is a list of key features you must know about the UAE corporate tax which is based on the Ministry of Finance clarifications and not based on the law which is still not issued.

What is the Corporate Tax in the UAE?

The Ministry of Finance (MoF) defines corporate tax as a type of direct tax levied on the net profit of corporations or other entities from their business. A competitive corporate tax regime based on international best practices is likely to consolidate the UAE’s position as a leading global hub for business and investment. By introducing corporate tax in the UAE, the government aims to meet international standards for tax transparency and prevent harmful tax practices.

Corporate Tax Rates in the UAE

At present, the government plans to levy corporate tax at a 0% rate for taxable income up to AED 375,000. This tax rate is aimed at supporting small businesses and startups in the UAE. A headline tax rate of 9% will apply to taxable income exceeding AED 375,000. Corporate tax agents in Dubai can help you get more clarity on the tax rates.

Who will be Subject to UAE Corporate Tax?

All UAE businesses except those engaged in the extraction of natural resources will come under the ambit of the new UAE corporate tax. Extraction of natural resources will remain subject to emirate level corporate tax. Foreign entities and individuals will fall within the scope of corporate tax only when they conduct a trade or business in the UAE on an ongoing basis. The corporate tax will apply to all types of profits reported in the financial statements prepared as per internationally accepted accounting standards.

Corporate Taxes for Free Zone Companies

As per the FTA, companies operating in the free zones are subject to the corporate tax regime in the UAE. However, the government will continue to honour the corporate tax incentives currently being offered to the free zone businesses. However, free zone businesses that conduct business with the UAE mainland will not be eligible for this exemption.

The corporate tax requirement for free zone companies will be uniform across all the free zones in the UAE. Companies incorporated in a free zone are required to register and file a corporate tax return in the UAE. More details on the corporate tax compliance requirements for free zone companies will be issued by the government in the due course.

Effective Date of UAE Corporate Tax Regime

As per the information provided by the Federal Tax Authority, the corporate tax regime in the UAE will be effective for financial years starting on or after 1 June 2023. Consider the following examples to get more clarity on this issue:

  • Businesses whose financial year start on 1st July 2023 and end on 30th June 2024 will have to meet corporate tax requirements from 1st July 2023
  • Businesses whose financial year start on 1st January 2023 and end on 31 December 2023 are required to meet the corporate tax requirements in the UAE from 1st January 2024

Determining Whether an Entity/Individual has a Taxable Business

Every activity undertaken by a legal entity will be considered a business activity and will fall within the scope of corporate tax in the UAE. In the case of an individual, it will be determined by reference to the individual having a business licence or permit to carry out the relevant commercial, industrial and/or professional activity in the UAE.

Audited Financial Statements for Corporate Tax Compliance

As per the initial information made available by the Ministry of Finance, corporate tax is payable on the accounting net profit reported in the financial statements of the business under obligation. Businesses are advised to present audited financial statements, which will provide the authorities more clarity on the entity’s compliance status with the corporate tax in the UAE.

Consequences of Non-Compliance Under the Corporate Tax

Similar to other taxes in the UAE such as the Value Added Tax (VAT), non-compliance will be met with penalties and other forms of punishments. Further information on the UAE corporate tax penalties will be released by the government in due course.

How can Jitendra Chartered Accountants Help You?

Most countries in the world, including major GCC countries, have already implemented corporate tax. The introduction of corporate tax in the UAE is a major reform in this regard as it shows the country’s commitment to align with the international best standards for streamlining its economy. Even though a Cabinet Decision regarding the UAE corporate tax is yet to be issued, businesses need to be prepared with adequate information on the compliance requirements. Tax Agents approved by the Federal Tax Authority in Dubai such as Jitendra Chartered Accountants (JCA) can provide you with adequate information on the corporate tax. JCA is one of the leading providers of accounting, audit, and tax compliance services in the UAE. We are committed to helping every business to comply with the legal requirements implemented by the government.