Corporate Tax in UAE

What is Corporate Tax?

Corporate tax in UAE is a direct tax levied directly on the profits of companies. The UAE Ministry of Finance (MoF) has introduced a Federal Corporate Tax, which will be applied to entities making profits more than AED 375,000 at a rate of 9 percent. The tax will apply to fiscal years starting on or after 1st June 2023. Businesses in the United Arab Emirates (UAE) must now figure out their Corporate Tax based on the profits listed in their financial statements, which need to meet international reporting standards. This means that businesses must now prepare their financial statements as well as have them audited by a registered audit firm without exception or delay, as the audited financials are essential for calculating corporate tax efficiently.

Who has to Pay Corporate Tax in the UAE?

The UAE corporate tax applies to: 

Corporate Tax on Mainland Companies:

Mainland companies are businesses located in the mainland regions of the UAE. They obtain their licenses from the Department of Economic Development (DED). These companies provide numerous advantages as well as do not require a minimum capital for setup.

Corporate Tax on Free Zone Entities:

Free zones provide benefits like full foreign ownership and tax breaks. Companies in these zones can enjoy a 0% corporate tax rate on qualifying income if they meet certain rules, like not doing direct business with the UAE mainland. However, they still need to file tax returns to report their income and confirm they qualify for these benefits.

Corporate Tax on Foreign Companies:

Foreign companies with a permanent establishment or significant economic presence in the UAE are subject to corporate tax. A “permanent establishment” includes fixed business locations or activities generating income within the UAE.

Corporate Tax on the Branches of Foreign Companies:

Branches of foreign companies in the UAE are required to pay tax on the income they generate in the country. They must follow UAE tax rules but can still take advantage of the business-friendly environment.

Corporate Tax on Natural Persons:

Corporate tax on natural persons becomes applicable when they generate revenue of over AED 1 million, from business or business activities carried out in the UAE, within a calendar year (January 1 to December 31), starting from 1 January 2024.   

Scope and Rate of Corporate Tax in the UAE

Corporate Tax (CT) in the UAE applies to most businesses at a rate of 9%, except for companies involved in natural resources. Taxable income is calculated based on the net profit shown in financial statements, adjusted as per CT rules. 

CT rates are:

• 0% for businesses earning up to AED 375,000.
• 9% for businesses earning more than AED 375,000.
• 15% corporate tax on multinational companies if their aggregated global revenue is equal to or more than EUR 750 million. But if the revenue does not exceed EUR 750 million, normal 9% corp0rate tax rate will be applicable. 

CT does not apply to salaries or personal real estate investments unless a permit is needed. Income from savings, like interest, and personal capital gains, dividends, and securities are also exempt.

Which Businesses are Not Required to Pay Corporate Income Tax in the UAE?

Some entities in the UAE do not have to pay corporate income tax. These include: 

• Entities that are entirely owned by the government are exempt from corporate tax.
• Non-profit organizations may be exempt, provided they meet specific conditions.
• Some investment funds might not have to pay corporate income tax if they meet certain rules.

Vertix auditing provides complete guidance on whether your business qualifies for exemptions and assists with the necessary documentation.

Calculation of Taxable Income

Taxable income is based on the company’s net profit in its financial records. However, some changes are made to include or remove certain items.

Non-Deductible Expenses: Some costs cannot be charged from the taxable income. These include fines, penalties, as well as other expenses not directly related to business activities.

Exempt Income: Some types of income do not have to pay corporate tax. For example, dividends from certain investments or income that is specifically excluded under UAE tax rules are not counted as taxable income.

Tax Loss Relief: If a business faces losses, these can usually be carried over to reduce taxable income in future years. However, this is allowed only under specific rules and limits set by the tax authorities.

Transfer Pricing Rules

The UAE has rules for pricing transactions based on international standards set by the OECD. These rules apply to transactions between connected businesses. Here are the primary points:

Arm’s Length Principle: Connected businesses must set prices and terms as if they were separate companies. This means the prices and terms should be reasonable and like what different businesses would agree on.

Documentation Requirements: The companies must keep detailed records of transfer pricing, including a Master File and a Local File. These documents show that their pricing policies follow the rules.  

Penalties for Non-Compliance: If a business doesn’t follow the transfer pricing rules or keep the needed documents, they may get fines.

Compliance Requirements

Businesses that are subject to corporate tax in the UAE must follow these important rules:

Corporate Tax Registration: Every business must register with the Federal Tax Authority (FTA) for corporate tax and get a Tax Registration Number (TRN). Refer to our detailed Corproate Tax Registration Guide to register your busienss for corproate tax in UAE.

Filing Tax Returns: Companies need to file a corporate tax return every year. This report should include details of their taxable income and how much tax they owe.

Payment of Tax: Businesses must pay their corporate tax within 9 months after the end of the tax year or accounting period.

Record Keeping: Companies must keep their financial records and all related documents for at least 7 years. These records may include invoices, receipts, and financial statements to prove compliance with tax rules.

Meeting these compliance requirements is essential to avoid penalties and ensure smooth business operations under the UAE’s corporate tax system.

Corporate Tax Return Filing

All businesses in the UAE are required to submit an annual corporate tax return electronically. Not meeting this obligation can lead to serious penalties. At Vertix, we are here to help you stay compliant and avoid any possible fines. Should you wish to file your corporate tax return by yourself, please refer to our corporate tax filing guide which provides a step-by-step process to file your tax return.

Penalties for Non-Compliance

How Businesses Can Efficiently Prepare for Corporate Tax

First of all, figure out that does your business need to pay corporate tax and roughly how much you have to pay. If you are based in a free zone, confirm if you qualify for the 0% tax rate on income that meets certain conditions.

Update your systems: Use accounting tools or tax software to make sure your financial records are accurate and can calculate taxes properly under the new rules.

Take help from an expert: At last, take help from an expert tax advisor or accountant so that you get reliable support and help. They will help you understand the changes and make sure everything is done right and accurate.

Why Should You Outsource Corporate Management of Your Company?

Compliance: Corporate tax services for businesses in the United Arab Emirates assist companies in following the country’s tax regulations, ensuring they always stay compliant and avoid fines or legal problems.

Expertise: Tax advisors in Dubai focus on corporate tax laws and have a deep understanding of them, which helps them give reliable advice and support in tax planning as well as preparation.

Cost Savings: Smart tax planning helps you spot tax breaks and credits you might qualify for so that you pay less and keep more cash in your pocket!

Audit Support: Audit firms in Dubai assist during tax audits, ensuring businesses are thoroughly prepared and fully compliant with tax authorities’ requirements.

Risk Mitigation: Internal auditors in Dubai help businesses identify and handle tax risks, keeping them compliant and reducing the risk of financial or reputational damage.

Efficiency: Corporate tax services simplify tax processes, freeing up your time and resources to focus on other important areas of your business, helping you grow and succeed efficiently.

Strategic Planning: These services offer strategic tax planning advice, helping your business optimize tax efficiency and support long-term growth.

How Vertix’s Corporate Tax Services Can Benefit Your Business

At Vertix, we offer the best corporate tax services that are specifically designed to the needs of a business in the UAE. At our firm, we have a team of skilled and experienced tax professionals who are familiar with the UAE tax system so they are the perfect choice to save you from any type of loss. We create custom plans to help your business grow while following tax rules, and we’ll find smart ways to save you money on taxes too!

When you choose Vertix, you are actually partnering with experts who truly care about your success. We handle everything from compliance and tax optimization to audit support, risk management, and strategic planning. With Vertix, you can relax by knowing your corporate tax needs are in expert hands, helping your business to succeed and grow.

Practical Examples of How to Calculate Corporate Tax in UAE

Example 1: Small Business with Low Income

• Business Type: Small retail shop in Dubai mainland.
• Taxable Income: AED 300,000.
• Tax Calculation:
  • Income below AED 375,000 is taxed at 0%.
  • Tax Liability: AED 0.

Example 2: Medium-Sized Business with Moderate Income

• Business Type: Medium-sized trading company in Abu Dhabi.
• Taxable Income: AED 1,000,000.
• Tax Calculation:
  • First AED 375,000: 0% tax.
  • Remaining AED 625,000: 9% tax.
  • Tax Liability: AED 625,000 × 9% = AED 56,250.

Example 3: Free Zone Business with Qualifying Income

• Business Type: IT company in Dubai Internet City (free zone).
• Taxable Income: AED 500,000 (all qualifying income).
• Tax Calculation:
  • Qualifying income is taxed at 0%.
  • Tax Liability: AED 0.

Example 4: Free Zone Business with Non-Qualifying Income

• Business Type: Logistics company in Jebel Ali Free Zone.
• Taxable Income: AED 800,000 (AED 600,000 qualifying income + AED 200,000 non-qualifying income).
• Tax Calculation:
  • Qualifying income (AED 600,000): 0% tax.
  • Non-qualifying income (AED 200,000): 9% tax.
  • Tax Liability: AED 200,000 × 9% = AED 18,000.

Example 5: Large Multinational Corporation

• Business Type: Multinational manufacturing company with a branch in the UAE.
• Taxable Income: AED 10,000,000.
• Tax Calculation:
  • First AED 375,000: 0% tax.
  • Remaining AED 9,625,000: 9% tax.
  • Tax Liability: AED 9,625,000 × 9% = AED 866,250.

Example 6: Startup with Losses

• Business Type: Tech startup in Dubai.
• Taxable Income: AED -100,000 (loss).
• Tax Calculation:
  • No tax on losses.
  • Losses can be carried forward to offset future taxable income.
  • Tax Liability: AED 0.

Example 7: Branch of a Foreign Company

• Business Type: Branch of a foreign consulting firm in the UAE.
• Taxable Income: AED 2,000,000.
• Tax Calculation:
  • First AED 375,000: 0% tax.
  • Remaining AED 1,625,000: 9% tax.
  • Tax Liability: AED 1,625,000 × 9% = AED 146,250.

Example 8: Public Benefit Organization

• Business Type: Non-profit charity registered in the UAE.
• Taxable Income: AED 1,500,000.
• Tax Calculation:
  • Public benefit organizations are exempt from corporate tax.
  • Tax Liability: AED 0.

Example 9: Extractive Industry (Oil and Gas)

• Business Type: Oil exploration company in Abu Dhabi.
• Taxable Income: AED 5,000,000.
• Tax Calculation:
  • Extractive industries are exempt from federal corporate tax but subject to emirate-level taxation.
  • Tax Liability: AED 0 (federal corporate tax).

Example 10: Investment Fund

• Business Type: Real estate investment fund in the UAE.
• Taxable Income: AED 3,000,000.
• Tax Calculation:
  • Qualifying investment funds are exempt from corporate tax.
  • Tax Liability: AED 0.

Take Action

At Vertix, we are here to provide our respective clients the best services they need for their business, making sure they have a smooth experience. Our team of qualified and experienced tax professionals uses their expertise and industry knowledge to develop personalized solutions that help your business grow and succeed.

If you need assistance with tax planning, compliance, audits, international taxes or corporate tax in the free zones of UAE, we are here to assist you through each and every step to make sure that you are always on the right track. To find out more about our complete range of corporate tax services in the UAE, contact us today to get benefit of reliable help.