Starting from June 1, 2023, a new corporate tax regulation was introduced in the United Arab Emirates (UAE), impacting nearly all businesses operating within the nation and therefore proper corporate tax planning in the UAE will be needed. This move means the UAE is shifting away from a tax-free environment as it aims to enhance transparency and reliability, comply with international financial standards, and fighting actively against illegal activities and tax evasion. As the UAE strives to strengthen its status as a global financial and trading hub, it continues to adopt advanced tax and accounting practices. By 2024, the UAE had made significant progress, resulting in its removal from the FATF “grey” list. This positive development suggests that the UAE will continue to refine and develop its tax system.

All legal entities and individuals engaged in business activities in the UAE must register for corporate tax with the Federal Tax Authority (FTA), obtain a taxpayer registration number, and file an annual tax return. The deadline for initial registration was on the 31^st of May 2024, with a penalty of 10,000 dirhams for late registration. Understanding the registration process is essential for compliance with corporate tax planning in the UAE.

 Corporate Tax Planning in the UAE: Overview and Key Details

The UAE’s corporate tax rate, at 9%, is one of the lowest globally, with potential reductions to 0% under specific conditions. The Ministry of Finance has provided extensive guidelines, including 352 questions covering all aspects of the new tax regime. Below, we discuss the critical aspects of federal corporate tax planning in the UAE.

 Key Elements of Corporate Tax Planning in the UAE

Corporate tax in UAE is levied on taxable income, defined as net profit or loss adjusted according to the corporate tax law in the UAE. This law is federal, applying uniformly across all Emirates. The standard corporate tax rate is 9%, though special conditions exist for companies in free zones, small businesses, and individuals.

 Taxable Persons and Tax Period

Both residents and non-residents of the UAE can be subject to corporate tax. The tax period typically follows the Gregorian calendar year (January 1 to December 31), unless an alternative period is used for financial reporting.

 Who Must Pay Corporate Tax in UAE?

1. Legal Entities (in mainland and free zones);
2. Individuals conducting business activities with a licence;
3. Foreign entities with a permanent establishment in the UAE receiving income from UAE sources.

 Corporate Tax Rates in the UAE

     Mainland Companies

• Taxable profit up to 375,000 dirhams: 0% tax rate;
• Taxable profit exceeding 375,000 dirhams: 9% tax rate.

 Free Zone Companies

Companies earning income from qualifying activities (Qualifying Free Zone Persons) can benefit from a 0% tax rate. To qualify, companies must:

• Engage in government-defined qualifying activities;
• Operate within the free zone territory;
• Possess adequate assets;
• Employ a sufficient number of qualified employees;
• Maintain a sufficient level of operating expenses.

Income from non-qualifying activities is taxed at the standard rate of 9%.

 Small Business Relief (SBR)

Businesses with revenue up to 3 million dirhams per tax period can opt for the SBR regime, allowing them to pay no corporate tax in the UAE. Exceeding this revenue threshold results in the loss of eligibility for SBR. This program is available until December 31, 2026.

 Individuals Conducting Business Activities

This category includes freelancers, self-employed individuals, sole entrepreneurs, and others operating under a commercial licence. Tax rates are as follows:

• Annual turnover up to 1 million dirhams: 0% tax rate;
• Turnover exceeding 1 million dirhams: 9% tax on profits over 375,000 dirhams;
• Freelancers and sole entrepreneurs can apply for SBR if revenue does not exceed 3 million dirhams.

Individuals must register for corporate tax in the UAE and file an annual tax return once their turnover reaches 1 million dirhams.

 Exemptions from Corporate Tax in the UAE

Certain entities are exempt from the new tax regulations, including:

• Federal and Emirate governments and their agencies;
• State-owned enterprises;
• Companies involved in natural resource exploration in the UAE;
• Public benefit organisations;
• Investment funds;
• Government and private pension and social security funds.

 Income Not Subject to Corporate Tax in the UAE

The following incomes are exempt from corporate tax in the UAE:

• Individual salaries;
• Investment and deposit income;
• Real estate income;
• Rental income;
• Dividend income;
• Inheritance;
• Capital gains.

 Conclusion

To operate legally and transparently in the UAE, businesses and individuals must adhere to their tax obligations, file tax returns promptly, and submit financial statements to the relevant authorities.

WellTax offers comprehensive support in corporate tax planning in the UAE, ensuring clients understand and comply with the new regulations. Our team of experts provides personalised tax strategies to minimise liabilities and maximise benefits. We assist with timely registration, accurate tax return filing, and maintaining proper accounting records. Additionally, WellTax offers ongoing advisory services to adapt to evolving tax laws and optimise financial planning. Trust WellTax for expert guidance and seamless compliance with the UAE corporate tax requirements.

For further information, you can visit our website.

Frequently Asked Questions

Do offshore companies have to pay corporate tax in the UAE?

No, foreign companies without a permanent establishment or income sources in the UAE are not subject to the new corporate tax law.

 Is it mandatory to keep accounting records and submit financial statements in the UAE?

Yes, all companies must prepare financial statements according to IFRS and maintain proper accounting records to support their profits and income sources, facilitating accurate tax return filing.

 Do companies have to file tax returns?

From June 1, 2023, all UAE companies must register with the FTA and file annual tax returns via the EmaraTax portal. Taxes must be paid within nine months after the end of the tax period.

 If a company pays VAT, does it also have to pay corporate tax in the UAE?

Yes, companies must separately register for and comply with both VAT and corporate tax regimes.

 Can companies offset losses against profits?

Yes, companies can offset up to 75% of taxable income with losses from previous periods, with specific conditions for shareholder continuity and activity type.

 Will companies within a group of companies pay tax separately?

No, a group of companies can be taxed as a single entity.

 If an individual conducts multiple business activities, should they pay corporate tax separately for each?

No, all business activities of an individual are considered a single taxable entity for corporate tax planning in the UAE, requiring only one tax return.

 What is transfer pricing in the UAE?

Transfer pricing refers to the pricing of goods or services between related parties. The UAE requires these prices to be similar to those in transactions between unrelated parties. Taxpayers must disclose related party transactions and provide necessary documentation.

Understanding and complying with corporate tax planning in the UAE is crucial for businesses and individuals. Our experts can provide the guidance needed to navigate these requirements effectively. Contact us for more information.