UAE Corporate Tax Overview – A Complete 2023 Guide - ACE Tax Consultant

UAE Corporate Tax Overview – A Complete 2023 Guide

Formerly, the UAE hasn’t imposed any taxes on the corporation’s profit except in a few handful of industries like foreign banks and resource extraction. However, by the beginning of June 2023, the United Arab Emirates government introduced a new UAE corporate tax for the country, which made businesses and individuals intrigued about this new taxation policy. As per the new policy, companies operating in Dubai, Abu Dhabi, and other places in the UAE now need to pay a 9% Corporate tax rate for annual income exceeding 375,000 AED, approximately USD 100,000.

With this post, let’s learn every bit about UAE Corporate tax and explore its benefits for businesses under the policy. But first, let’s just explore what corporate tax stands for.

What is UAE Corporate Tax in 2023?

From 2023 onwards, the United Arab Emirates corporate tax is now going to apply 9% on the profits of all businesses exceeding 375,000 AED on an annual basis. Businesses generating less than the stated profit amount need to pay a sum of 0% tax rate. Further, the country’s government announced that all the large multinational firms with a ranging profit of more than EURO 750 million are liable to pay a 15% tax under the governance of the Global Minimum Corporate Tax Rate agreement. As we already discussed the new UAE corporate tax has already come into effect, we understand it’s kind of difficult to understand and implement well without the helping hands of professionals. That’s why, as leading VAT and Corporate Tax Consultants in Dubai, UAE follow an optimistic approach to offer the most valuable solutions for your business accounts and taxation.

Note to Remember – All the businesses/ companies whose tax years start from January every year don’t need to pay taxes on revenues generated prior to 01st January 2024.

Features of Major Corporate Tax Regime in 2023

The corporate tax regime in UAE binds up a diverse range of policies and schemes. Right from tax-free zones to amending corporate taxes nationwide, our VAT consultants would cover all the details in need. Below neath is a detailed guide incorporating the features of major corporate tax regimes in 2023.

Who can be levied taxes?

All the legal entities like LLCs, LLPs, PSCs, and others will be levied with tax. Other than this, any other foreign legal entity that earns income from the United Arab Emirates will be charged as a tax resident. Although all the free zones across the UAE wide will be charged 0% corporate tax in return for all the regulatory requirements to trade activity with the mainland.

All the residents and non-residents of the country may also be subjected to fulfilling new UAE corporate tax policies.

What is the federal corporate tax rate in UAE?
If a business earns an income exceeding AED 375,000 will be charged 9%, and 0% tax if it doesn’t exceed the limit of AED 375,000. At the same time, a different tax rate would be charged for all the big brand enterprises and larger multinational companies with varied business conditions.

Who is exempted from Corporate Tax?
Upon selling subsidiary company shares or receiving some dividends, includes the exemption cycle from corporate tax. Apart from this, public benefit organizations, charities, government-related schemes, income from pensions, personal income based on mutual funds and policies, investment funds, and UAE government-owned companies are exempted from paying any corporation taxes on the land.
Also, read about Tax Advisor by knowing their roles and responsibilities!

What Are the Businesses Outside the Scope of Corporate Tax? 

Businesses that surpass the threshold of 3,75,000 AED yearly profit, are liable to pay corporate tax. However, in addition to this, the government has exempted certain types of income or business under the corporate tax law, below are the mentioned details –

  • Individuals with annual salary will not be subjected to come under corporation taxation policy. This results in exempting income from employment, investments, real estate, or any personal income unrelated to trading will not be considered under the taxation policy.
  • Foreign investors who don’t be able to carry on businesses located in the United Arab Emirates.
  • Incentives related to UAE corporate tax have been provided only to the free zone businesses with regulatory requirements.
  • Major dividends and capital gains conclusive by the UAE businesses are also exempted from the taxation policy
  • Businesses work for oil and resource extraction.

What Would Be the Corporate Tax Impact on Indian Businesses in UAE?

With the comprehensive introduction of corporate tax in the United Arab Emirates, a majority of Corporate Tax Consultants in Dubai claim it might influence the decision-making of Indian businesses who are keen to establish or expand their business presence in Dubai or Abu Dhabi. To add further details to the matter, the 9% of corporate tax in the United Arab Emirates is lower than India’s corporate tax rate. These facts make places like Dubai an attractive spot for Indian businesses. But, the overall exemption of AED 1,000,000 and other major specifics is what plays a crucial role in business establishment in the land.
Most Indian businesses have their set up presence in the UAE free zones, which were formerly completely tax-free. Even though the new corporation law gives relief by adding a 0% corporate tax rate for free zone entities, businesses established in the mainland need to pay a cumulative 9% tax rate on the taxable income of more than AED 375,000.

Recently Added – What is the tax rate in Dubai?

Conclusion Part

To address the conclusion part, the 9% Corporate tax rate in the UAE mainland has taken up a new step on the way to boost international tax transparency standards. Despite offering potential implications for many businesses, the United Arab Emirates maintains a productive environment for both local and foreign investors by offering a 0% tax policy for all free zone entities.

Frequently Asked Questions

Q1. What does corporate tax stand for?

A corporate tax is also termed as a direct tax levied on the net profit or income of business entities and other corporations. It is also known as Business Profits tax or Corporate Income Tax in many countries.

Q2. When was the federal corporate tax in UAE implemented?

With the beginning of the financial year on or after 01st June 2023, the government of the United Arab Emirates has implemented the federal corporate tax in the UAE mainland.

Q3. Who should pay the UAE corporation tax?

Under the new corporate income tax in the UAE, businesses that make a net profit of more than AUD 375,000 annually need to pay a 9% tax on their overall income percentage.

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