Corporate Income Tax In UAE

The authorities in the United Arab Emirates have announced a new Corporate Tax in UAE from 1st June 2023. Since its announcement, there has been a buzz among tax professionals and businesses throughout the country.  

There are numerous people who have numerous doubts and confusion about the corporate tax law UAE in 2023. If you are among those people who are looking to learn everything about corporate tax in UAE 2023, then you must read this article.

In this article, we will explore the crucial information that you should know about corporate income tax in the UAE in 2023. Moreover, we will try to clear all your doubts about corporation tax in the UAE in 2023.

So, without more delay in our journey to corporate tax UAE 2023, let us begin.

The UAE Corporate Tax 2023 – Overview

In the previous few years, the UAE or the United Arab Emirates has experienced significant changes in tax by streamlining its tax system and bringing it together with international best practices while also diversifying its state revenue.  

Beginning with the implementation of Value Added Tax or VAT in January 2018, followed by economic substance rule or ESR and CbCR in April 2019, the United Arab Emirates has been through tax reform in the past few years to match itself with the international market.

Similarly, the country has introduced Corporate Tax UAE 2023 on June 1st, 2023. The corporate tax will be a 9% tax on the profit of the business (excluding revenue expense) of all businesses that generate more than 375,000 AED* or $100,000. 

The best part about the new tax rule of corporate tax 2023 in the UAE is that businesses that generate profits less than or equal to 375,000 AED* will continue to pay 0% tax to the authority as a corporate tax. In short, if your business generates less profit than the required sum of money, then you are not required to pay corporate tax. 

Apart from the corporate tax, the UAE has additionally announced that large multinational companies or firms with profits of over EUR 750 million* will have to pay a 15% of tax. This statement is in line with the Global Minimum Corporate Tax Rate agreement.

The new corporate income tax UAE has come into effect with the beginning of the tax year on 1st June 2023. Suppose your business tax year starts in January. In that case, you will not have to start paying tax before January 2024. In short, you have to pay corporate tax from January 2024 if your business tax year begins in January. 

Scope of the CT

The UAE has introduced a federal tax system that is applicable to each and every business and commercial activity operating throughout the United Arab Emirates. However, there are numerous exceptions to these tax systems and Corporate Tax law in UAE. Let us have a look at the top exceptions of the federal tax system:

• • Businesses that are operating in the extraction of natural resources will carry on with to be subject to the decrees of tax by the respective emirates. 

• • Businesses those are registered in the free trade zone and those that do not conduct any business operation in the mainland.

• • People who are earning income in their personal capacity as long as the income-generating activity does not require a commercial license.

It is surprising to note that the international foreign banking sector, which has been operating or working under the Emirate Level Bank Decree, will now be subject to the Federal Tax Law of the UAE. The impact of CT on the level of the Emirate banking tax decree will be communicated in due course. This factor will be a significant shift for both branches of the foreign or international bank that will required to switch to the new law. Similarly, the local bank of the UAE will now be subject to the corporate income tax UAE. 

Features of the regime of Corporate Tax 2023

The corporate tax UAE 2023 comes with uncountable amounts of policies and features. Understanding these features will help you to be aware of all facts and insight about the new corporate tax rule in the UAE. Let us have a glance at the top features of regime corporate tax law UAE:

➤To whom may taxes be applied

Legal entities with remarkable personalities, such as LLCs, LLPs, PSCs, and more, will be leveled with taxes. Moreover, any foreign legal entity that earns money in the UAE will be charged. 

However, people in free zones will have to pay 0% tax in return that they comply with all regulatory requirements. Similarly, companies in free zones that are engaged in trading activities are also free from corporate tax in Dubai UAE. It would be best to note that residents and non-residents in the UAE may also subjected to corporate tax policies.

➤Tax rates 

The rate of the new corporate tax in UAE is 9% of profits of more than AED 375,000*. The UAE or UAE has decided to keep 0% rates for corporations that earn below the sum of the required amount to support small businesses and startups in the country.

➤Calculate taxable amount 

Generally, profits and loss shown in the company financial statement is used to determine the tax percentage and income. As mentioned above, the corporate tax rate is 9% on taxable income exceeding AED 375,000*. A portion of taxable income surpassing AED 375,000* (i.e., 400,000-375,000=AED* 25,000) at 9% = AED 2,250*

➤Tax  credit 

The regime will allow for credit in parallel with foreign tax that you pay in a foreign jurisdiction against the income of foreign tax, which has not been exempted. The primary motive to do so is to avoid double taxation. 

➤Groups 

The corporate tax law UAE has also allowed group relief provisions and tax grouping. Groups in the UAE should be able to file consolidated tax returns. Moreover, offsetting tax losses among groups might also be allowed. 

How can Flying Colours Tax help you?

Flying Colours Tax comes with the ability to help you solve any hurdle in tax paying and related problems. Moreover, they have a team of experts to provide valuable pieces of advice on financial and tax consultants. They have several solutions that are based on the proposed business plan of their clients. 

To learn more about Corporate Income Tax In UAE – 2023, book a free consultation with one of the Flyingcolour team advisors.

Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.