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Corporate Tax

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.

Major three Reliefs to UAE Tax payer through Cabinet Decision No. 49/2021

1.UAE VAT late payment penalties reduced from 1% per day (i.e. 31% per month) to 4% per month maximum ceiling 300%.

2. Tax payers who currently have pending tax penalties can #enjoy waiver of 70% of pending penalties, provided they settle the principal amount & 30% penalty before 31 December 2021.

3. Significantly late payment penalties now become applicable only from 20 days after voluntary disclosing (rather than from the original return due date). This is a positive move that will encourage businesses to submit voluntary disclosures in respect of long since submitted returns.

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UAE tax: Services provided by artists, social media influencers subject to VAT

The Federal Tax Authority (FTA) has clarified in a bulletin that services provided by artists and social media influencers (SMIs) for consideration are subject to Value Added Tax

The bulletin outlines that VAT applies to such services provided by artists and social media influencers that include, but are not limited to, any online promotional activities performed on behalf of other businesses for a consideration, such as promoting a product in a blog or a video or otherwise promoting a business on a social media post, any physical appearances; marketing and advertising related activities; providing access to any social media influencers’ networks on social media, and any other services that the SMIs may provide for a consideration.

This announcement was shared in the latest Basic Tax Information Bulletin issued by the FTA on the tax treatment of services provided by artists and social media influencers.

The bulletin clarified that if an artist or influencer incurs any costs in providing a service and subsequently recovers that cost from its client, such reimbursement falls within the scope of VAT in the UAE

UBO or ‘Ultimate Beneficial Owner’

A UBO or ‘Ultimate Beneficial Owner’ is the person or entity that is the ultimate beneficiary when a financial transaction is initiated. A UBO of a registered company is a person who holds a minimum 25 per cent of the company’s wealth, or at least a similar-sized voting power or ownership stake among other shareholders and benefits from receiving minimum 25 per cent of said firm’s money.

If no one meets the condition above, then any natural person who has the power to control the company using any other means may be termed as the UBO. In cases where UBO cannot be identified through the two conditions above, then a natural person who holds the highest management position in the company may be deemed as the UBO.

UBO regulations in the UAE

In the UAE, the government recently replaced a resolution relating to disclosure guidelines for any Ultimate Beneficial Owner, which covers the most updated requirements for entities in UAE to disclose its beneficial owners, intended to enhance transparency of the UAE registered entities.

On the other hand, there are entities which are exempted with this resolution. They are as follows: the companies in financial free zones like Abu Dhabi Gold Markets and Dubai International Financial Centre, and the companies which are directly or indirectly owned by the Federal or Emirate Government. Entities will need to assess who constitutes a UBO.

The UAE Cabinet passed a resolution this year, compulsorily seeking all firms to keep in their main offices registers on partners or shareholders, stating the information about the ownership interests and voting rights held by each individual.

Businesses are also asked to keep similar register on the top shareholder or main investor (25 per cent stake or more) of the company, while providing the relevant reason behind being majority owners of the company and directors, and date since they become one. Similarly, similar registers are to be kept for all other director of the company and nominated members, if any.

Excise tax rates in the UAE

Excise tax was introduced across the UAE in 2017. Excise tax is a form of indirect tax levied on specific goods which are typically harmful to human health or the environment. These goods are referred to as “excise goods”.

Following are the excise tax rates:

• Tobacco and tobacco products 100%
• Liquids used in electronic smoking devices and tools 100%
• Electronic smoking devices and tools 100%
• Carbonated drinks 50%
• Energy drinks 100%
• Sweetened drinks 50%

Should you pay VAT on online shopping?

The Federal Tax Authority (FTA) has confirmed that all purchases made through online shopping portals are subject to the same 5% Value Added Tax (VAT) as any other purchase made through traditional outlets in Dubai. That is, if the products purchased online are to be received within the United Arab Emirates. The Authority explained in an awareness flyer that according to Federal Decree-Law No. (8) of 2017 on Value Added Tax and its Executive Regulations, all online sales are subject to VAT where a seller's supplies exceed the mandatory registration threshold of Dh375,000 over the previous 12 months or the coming 30 days.

Value Added Tax (VAT) was introduced in the UAE from January 1, 2018. If you are new to the UAE and unaware of the type of tax it is, how you would get affected by it and whether you can receive a refund on VAT, contact Accounts Dubai to get the best solutions to all accounting and VAT needs

Areas in UAE are exempt from VAT

The Federal Tax Authority announced 20 designated zones which would be exempt from the recently-implemented five per cent VAT in the country. The designated zones are special zones for VAT purposes, which are generally considered outside of the UAE in terms of value-added taxation

Dubai: Jebel Ali Free Zone (North-South); Dubai Aviation City; Dubai Cars and Automotive Zone (Ducamz); Dubai Textile City; Free Zone Area in Al Quoz; Free Zone Area in Al Qusais; and Dubai Airport Free Zone

Sharjah: Hamriyah Free Zone; Sharjah Airport International Free Zone

Abu Dhabi: Free Trade Zone of Khalifa Port; Abu Dhabi Airport Free Zone; and Khalifa Industrial Zone

Ajman: Ajman Free Zone

Umm Al Quwain: Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port; Umm Al Quwain Free Trade Zone on Sheikh Monhammed Bin Zayed Road

Ras Al Khaimah: RAK Free Trade Zone; RAK Maritime City Free Zone; RAK Airport Free Zone

Fujairah: Fujairah Free Zone; Fujairah Oil Industry Zone (FOIZ)