Starting from June 1, 2023, the UAE has implemented a new corporate tax on companies’ net profits. This introduces additional obligations for many entrepreneurs. In this article, we’ll explore the applicability of the new tax, its rates, taxable incomes, and exemptions.
The corporate tax applies solely to business profits, calculated as income earned minus expenses incurred. It does not encompass individual income sources like wages or rental earnings from real estate. Additionally, capital gains and dividends from international company shares are exempt from taxation.
Introduced to boost revenue for the nation’s economic growth, the new tax aims to bolster the UAE’s budget. Despite these adjustments, the country’s tax legislation remains moderate, with one of the lowest tax rates among nations implementing a profit tax.
As a general rule, taxpayers subject to the corporate tax comprise both residents and non-residents of the UAE.
Residents are subject to taxation on all profits generated within and outside the country. Non-residents, on the other hand, are only taxed on income derived from sources within the UAE, as well as from establishments within the nation and other income linked to the United Arab Emirates.
The tax period for corporate tax follows the calendar year. Registered taxpayers must file their tax return within 9 months after the tax period’s conclusion or as requested by the regulatory authority. During audits, the tax authority may demand financial statements to verify reported taxable income. Consequently, all accounting records must be retained for a period of 7 years.
Corporate tax payments are required annually, with no provisions for advance payments or withholdings not provided for by law.
Entities exempt from corporate tax payments include:
Moreover, the legislation allows for the potential exemption of companies owned and operated by entities exempt from payment.
The standard corporate tax rates in the UAE are as follows:
Similarly, for eligible residents of UAE free economic zones:
Even if subject to a zero tax rate, businesses must still file declarations promptly.
The subject of taxation under the new corporate tax in the UAE is specifically the net profit. This figure comprises all income earned by the taxpayer during the tax period, minus any associated expenses. It is imperative that the final profit amount is accurately documented in accounting and financial records.
Regarding taxation under the new corporate tax, the following incomes are deemed non-taxable:
The listed incomes are excluded from the calculation of business profits and are thus exempt from corporate tax in the UAE.
Companies operating within UAE free zones may qualify for corporate tax exemption if they meet the following conditions:
If a company does not meet these conditions, it must adhere to the standard corporate tax rules.
Additionally, residents of UAE free economic zones can choose to forgo these benefits and switch to the general taxation regime voluntarily.
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