Difference between Corporate Tax and Income Tax in UAE
Recently, the UAE government introduced new rules and regulations on Corporate Business Tax in the UAE. The new regulations for Business Taxation in the United Arab Emirates have created a lot of questions among the people in the United Arab Emirates.
The most important question people raise in the UAE is the difference between Corporate Tax and Income Tax. Countless people are still searching for concrete answers to the confusing Taxation Differences.
You should read this article if you are confused about Individual vs Corporate Tax. In this article, we will provide you with in-depth information on the differences between income and Corporate Taxes in the UAE. Also, we will provide you with basic information on the new business tax laws in this country.
So, let’s not delay it any longer in our journey. Let’s get started.
Individual Tax
When it comes to Personal Tax in the United Arab Emirates or UAE, there are two types of taxes implemented for the residents of this country. The following are the two types of taxes for people in the UAE:
- Income taxes: there may be no Personal Tax for the people residing in the UAE. Whether or not you're a resident or citizen, you do not have to pay any sort of Personal Tax inside the UAE. Remember, you may turn out to be a tax resident in this country after you have a residence visa. Gift, wealth, interest, inheritance, and capital gains taxes are excluded. Additionally, there is no pension tax for foreigners with a residence permit in the United Arab Emirates.
Corporate Tax in the United Arab Emirate
Since you have understood the exact meaning of the Personal Tax or income tax from the previous section, it is the right time to understand the Corporate Tax Explained. On 9th December 2022, the UAE revealed a new corporate law to apply a Corporate Tax law exempting certain entities and certain incomes from paying a mandatory Corporate Tax fee.
The government of the United Arab Emirates, or UAE, incorporated the UAE Corporate Tax regime, which has already been effective from 1st June 2023. The Corporate Tax in the UAE for a covered person from the tax period starting on or after 1st June 2023 on profits that businesses get from selling their goods and services. The law for Business Taxation covers taxation on the profits of companies of UAE residents. Remember, this regulation is applicable to corporate entities and 0% who are conducting business or business activities in the UAE. However, the law has been exempt for a few incomes. The following is the list of revenues that are exempt from this law:
- Profits from Qualifying Intra-group transactions
- There will be 0% UAE withholding tax on domestic and cross-border transactions.
- Dividend income earned by UAE businesses from their qualifying shareholdings subject to conditions.
- Profits from group reorganization, subject to conditions
The Ministry of Finance revealed the new decision by the new cabinet relating in order to Qualifying Public Benefit Entities. The new rule is designed to make sure that organizations or businesses conducting for the benefit of the significant public do not have to pay tax.
When foreign profits are subject to UAE Corporate Tax, the amount of tax paid in the foreign country on UAE taxable income will be deducted from the UAE Corporate Tax liability.
Except for Bahrain, the United Arab Emirates has introduced the lowest Corporate Tax rate of 9 per cent on taxable income. Businesses conducting in a Free Trade Zone shall continue to be 0% subject to condition, where these businesses earn specific qualified income and meet particular specified conditions. In this case, taxable income refers to income exceeding more than AED 375,000*.
The law of this Corporate Tax also applies to non-residents of the UAE. However, the non-residents would be taxed only regarding the earnings from a UAE Permanent Establishment (PE) or income sourced from the UAE (known as State Sourced Income).
If a natural person's turnover exceeds AED 1 million in a Gregorian calendar year, their taxable income will be subject to Corporate Tax at these rates:
- 0% on the portion of the Taxable Income not exceeding AED 375,000*.
- 9% on the portion of the Taxable Income that exceeds AED 375,000*.
Corporate Tax vs Income Tax - Verdict
Till now, we hope that you have understood the difference between Corporate Tax vs Income Tax. The following is the table, which will help you to understand quickly Individual vs. Corporate Tax:
| Aspects | Income Tax | Corporate Tax |
| Tax rates | 0 percent Personal Tax | 9 percent |
| Effective date | No effective date | 1 June 2023 |
| Applies to | No one | Businesses and business activities operating in the UAE |
| Exemption | All people, including citizens, residents, and non-residents. |
Profits from Qualifying Intra-group transactions ● Businesses operating in Free trade zone will be taxable at 0% rate, subject to conditions. ● There will be 0% UAE withholding tax on domestic and cross-border transactions. ● Dividend income earned by UAE businesses from their qualifying shareholdings (to be defined in the law) ●Profits from group reorganization, subject to conditions.
|
| Minimum income | - | AED 375,000 |
How can Flying Colour Tax help you?
Flying Colour Tax Consultant offers tailored corporate tax consultation services to help you understand everything about corporate tax. Our team of experts can help you gain clarity about UAE Corporate Tax.
To learn more about difference between corporate tax and income tax in UAE, book a free consultation with one of Flyingcolour team advisors, simply call +971 50 5585305 or send WhatsApp messages to +971 4 4542366. you can also drop an email to info (at) flyingcolour (dot) com.
This article was published on 10th January, 2024. The information provided in the article is based on the policies and rules applicable at the time of writing it. Talk to one of our consultants for any recent update or change.
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To learn more about What is the Difference between Corporate Tax and Income Tax in UAE?, 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.