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2024 Guide to Corporate Tax in UAE – FAQs Answered!
Reality check: Corporate Tax is now applied to small and medium-sized businesses (SMEs) in the UAE.
Read that again.
If I had told you that Corporate Tax was mandatory a few years ago, you would have dismissed it as pure fabrication or a corporate conspiracy theory!
And rightfully so.
Despite building a reputation for being a tax haven in the MENA region, the UAE government introduced new tax provisions that will reshape the business landscape.
The UAE is still home to more than 557,000 SMEs and still draws young and ambitious solo entrepreneurs looking to make an indelible mark on the MENA ecosystem.
Better be prepared than sorry – get tax-ready today.
In this guide, we will break down intricate taxation provisions in the UAE and help you navigate the nitty-gritty details of the new Corporate Tax laws, setting your business up for success.
Let's begin....
What is Corporate Tax in the UAE?
Corporate Tax is a form of direct tax imposed on the net income or profit of corporations and other businesses.
Sometimes, Corporate Tax is referred to as Corporate Income Tax or Business Profits Tax.
What Does “Person” Mean in Corporate Tax Context?
You'll see the word "person" popping up when you read about taxes in UAE, especially Corporate Tax. Before we dive in, you need to understand what a person means in the context of taxation.
- Natural Person refers to individuals living in or outside the UAE.
- Juridical Person refers to any entities, corporations, or partnerships conducting business in the UAE.
What's the Corporate Tax Rate?
The Federal Tax Authority (FTA) applies different Corporate Tax rates based on the business income:
- 0% Corporate Tax Rate: Taxable Income not exceeding AED 375,000
- 9% Corporate Tax Rate: Taxable Income exceeding AED 375,000
- 15% Corporate Tax Rate: Multinational enterprises (MNEs) with consolidated global revenue exceeding AED 3.15 billion. The enterprises should be subject to OECD's Base Erosion and Profit Shifting (BEPS) Project's Pillar Two.
Is a 0% Tax Rate Equal to an Exemption?
The 0% tax rate is different from tax exemption.
A 0% corporate tax rate means the company will technically pay nothing, but it will still need to file its tax return and submit it to the FTA. In contrast, an “exemption” means that a business may not be required to file its return altogether.
Who Needs to Pay Corporate Tax?
The Corporate Tax applies to all businesses and commercial activities in the UAE that generate Taxable Income. People and businesses subject to Corporate Tax are called Taxable Persons, including:
1- Companies incorporated and controlled in the UAE, including Free Zone.
2- Individuals conducting a business or business activity in the UAE.
3- Foreign legal entities that have a permanent establishment in the UAE.However, there are exceptions to every rule.
Who Are Exempted from Corporate Tax?
The following persons are exempt from the Corporate Tax in UAE (subject to conditions):
- Government entities
- Entities controlled by the government.
- Businesses engaged in extracting natural resources (oil, gas, etc.).
- Non-extractive natural resource business.
- Qualifying public benefit entities.
- Qualifying investment funds.
- Pension or social security fund.
Will Corporate Tax Apply to Individuals?
Definitely, yes.
Corporate Tax applies to both businesses and individuals. Resident or non-resident individuals are subject to Corporate Tax if their annual turnover exceeds AED 1,000,000.
However, the turnover from the following sources will not be considered a business activity that is subject to Corporate Tax, regardless of the amount:
- Wage
- Personal Investment Income
- Real Estate Investment Income
Corporate Tax in Free Zones:
The FTA offers many facilities and tax benefits to Free Zone business owners. These benefits are designed to reduce the hassle and help businesses grow.
What is a Free Zone in the UAE?
Free Zones in the UAE are special economic zones in which expatriates and foreign investors can have 100% ownership of companies. These zones are designed to provide fantastic infrastructure and distinguished services to help business owners save time and have smooth workflows.
Will Free Zone Business be Affected by Corporate Tax?
All Free Zone businesses must register for Corporate Tax. They'll then pay either 0% on qualifying income or 9% on non-qualifying income.
Qualifying Free Zone Persons are subject to a 0% Corporate Tax rate if they meet all the following conditions:
1- Maintain adequate substance in the UAE.2- Derive Qualifying Income.
3- Never choose to be subject to Corporate Tax at the standard rates.
4- Comply with the transfer pricing requirements under the Corporate Tax Law.
Who Should You Register for Corporate Tax in the UAE?
The FTA has made it clear that all businesses in the UAE must register for Corporate Tax before deadlines or they will be subject to an AED 10,000 penalty.
Corporate Tax Registration Deadline UAE:
The FTA revealed the registration deadlines for Corporate Tax. The deadlines vary according to a person’s nature and license date. The following tables categorize the deadlines into three sections:
1- Resident Juridical Persons
A- If the company is incorporated or recognized before 1 March 2024:
|
Date of License issuance |
Corporate Tax Registration Deadline |
| January – February | May 31, 2024 |
| March – April | June 30, 2024 |
| May | July 31, 2024 |
| June | August 31, 2024 |
| July | September 30, 2024 |
| August – September | October 31, 2024 |
| October – November | November 30, 2024 |
| December | December 31, 2024 |
What if a Person Doesn’t Have a License Yet on March 1, 2024?
He should register for Corporate Tax on May 31, 2024.
B- If the company is incorporated or recognized on or after 1 March 2024:
|
Category of Juridical Person |
Deadline for Submitting a Tax Registration Application |
|
Under the applicable legislation in UAE, including a Free Zone Person |
3 months from the date of incorporation, establishment or recognition. |
|
Under the applicable legislation of a foreign jurisdiction effectively managed and controlled in UAE. |
3 months from the end of the financial year of the person. |
2- Non-Resident Juridical Person
A- If the person is non-resident before 1 March 2024:
|
Category of Juridical Person |
Deadline for Submitting a Tax Registration Application |
|
A Person that has a permanent establishment in UAE |
9 months from the existence of the permanent establishment date. |
|
A person that has nexus in UAE |
May 31, 2024 |
B- If the person is non-resident on or after 1 March 2024:
|
Category of Juridical Person |
Deadline for Submitting a Tax Registration Application |
|
A Person that has a permanent establishment in UAE |
6 months from the date of existence of the permanent establishment. |
|
A person that has nexus in UAE |
3 months from the establishment of the nexus date. |
What if a Person Holds More Than One License?
The license with the earliest issuance date shall be used.
3- Natural Persons (Individuals)
|
Category of Natural Person |
Deadline for Submitting a Tax Registration Application |
|
A resident person who is conducting a Business or Business Activity during 2024 or subsequent years and earns a yearly turnover exceeding 1,000,000 AED. |
31 March of the subsequent year |
|
A non-resident person who is conducting a Business or Business Activity during the 2024 calendar or subsequent years and earns a yearly turnover exceeding 1,000,000 AED. |
3 months from the date of exceeding the 1,000,000 AED |
Required Documents and Forms for Corporate Tax Registration
If the applicant is a Natural Person:
1- Emirates ID / Passport2- Trade license, if applicable
If the applicant is a Juridical Person:
1- Emirates ID / Passport of authorized signatory2- Trade license
3- Proof of authorization for the authorized signatory
Corporate Tax Filing Deadlines:
Taxable persons are required to file their Compote Tax return within 9 months of the tax period end.
What If You Missed Your Corporate Tax Filing Deadline?
Failing to file your Corporate Tax return within the timeframes will subject your business to a monthly penalty:
- First 12 months: AED 500 fine per month
- After 12 months: AED 1,000 finer per month
Small Business Tax Relief
The UAE encourages investments and offers incredible support and facilities to startups and small businesses to help them grow. One of these facilities is Small Business Tax Relief, which exempts eligible businesses from paying Corporate Tax.
Who Can Claim Small Business Tax Relief?
To be qualified for Small Business Tax Relief, your business must meet the following criteria:
1- Resident Taxable Persons2- Revenue is below AED 3 million for a tax period
3- Not a qualified Free Zone
4- Not a Member of Multinational Enterprises Groups
Will Corporate Tax Replace VAT?
The answer is: no!
Corporate Tax and VAT are two different types of taxes that serve separate purposes:
- Sometimes, a business can be subject to both taxes at the same time.
- Corporate Tax and VAT need to be filed separately.
- Businesses registered for VAT need to register for Corporate Tax.
How Corporate Tax is Going to Affect Businesses In UAE?
The UAE Corporate Tax is very attractive compared to other countries; however, the implementation of the new Corporate Tax system will affect businesses in a few ways:
- New Tax Burden: Most businesses must register and pay 9% of their profits exceeding AED 375,000 annually. This will reduce their cash flow and may require additional accounting and compliance efforts.
- Potential Price Increases: Businesses may raise prices to offset the new tax, leading to slightly higher costs for consumers and potentially reducing their purchasing power.
- Short-term Economic Impact: Lower consumer spending could reduce demand for goods and services and then impact business production and sales in the near future.
How Can mazeed Help You?
Our FTA-certified tax expert will handle the entire Corporate Tax compliance process for you, from registration to tax filing.
- Avoid Perlites
- Stay Compliant
- Save Time & Effort
Wrapping Up!
Corporate Tax is now a reality for all businesses in the UAE. To stay compliant and avoid penalties, all businesses in the UAE need to understand key concepts, including tax rates, exemptions, Free Zone regulations, registration procedures, and deadlines.
