The UAE has announced the introduction of corporate tax from 23rd June. It has generated a lot of buzz among tax professionals and businesses since its announcement. In making this announcement, UAE is all set to become the fourth GCC country to introduce a federal corporate tax.
UAE has introduced federal corporate tax with an aim of further strengthening the country's position as a world-leading hub for business and investment, and accelerating the strategic objective towards development and transformation. Furthermore, corporate taxes help meet international standards for tax transparency and avoid harmful tax practices.
As corporate tax is new in the UAE, it is imperative that businesses understand the concept. The following are some common questions that you may have about corporate tax. Get ready! Let's go.
UAE corporate tax - what is it? The corporate tax is a direct tax levied on corporations and other businesses, based on their net income. Additionally, it is called 'Corporate Income Tax' or 'Business Profits Tax'. Simply put, it is a tax imposed on the net profits made by businesses. Businessmen must pay a certain percentage of their profits to the government.
Who should pay corporate tax in the UAE? Those companies whose taxable profit (net) is over 375,000 AED are liable for corporate tax and need to pay a certain percentage.
In Dubai, what is the rate of corporate tax? Business profits are taxed at 9% of their net profits. In order to extend support to small businesses and start-ups, corporate tax rate will be '0' % for net profit up to AED 375,000
When will Corporate tax be implemented in UAE? Corporate tax will be effective from the financial year starting on or after 1st of June, 2023.
What businesses are exempt from corporate tax? Any businesses that exceed the profit threshold of 375,000 have to pay Corporate tax.
However, the following entities or income are exempt from Corporate tax; - Individuals will not be subject to Corporate tax. This means no income from employment, real estate, investments in shares and other personal income unrelated to a trade or business in the UAE will be exempt from corporate tax. - Foreign investors who do not operate a business entity in the UAE will be exempt from corporate tax. - Free zone businesses that comply with all regulatory requirements will be offered Corporate Tax incentives - Any gains or dividends earned by UAE businesses from any of its qualified shareholdings exempt from corporate tax. - Qualified intra-group transactions and/or corporate restructurings do not come under the purview of corporate tax. Hope this gives you a clearer idea of how you may want to plan the path ahead for your business operating in the AE.