Corporate Tax in UAE: Everything Entrepreneurs Need to Know
The corporate tax in UAE has undergone significant changes in recent years. If you are planning to start a business in the UAE, understanding the corporate tax regulations is essential for compliance and financial planning.
What is Corporate Tax in UAE?
Corporate tax refers to the direct tax imposed on business profits. In 2023, the UAE introduced a new corporate tax regime that applies to businesses operating in the country, marking a shift in its historically tax-friendly environment.
Key Highlights of UAE Corporate Tax
- Introduced in June 2023
- Standard corporate tax rate: 9% for taxable income exceeding AED 375,000
- Small businesses benefit: 0% tax for taxable income up to AED 375,000
- Applicable to: UAE mainland businesses and certain free zone companies
- Exempt entities: Government entities, charities, and public benefit organizations
Who Needs to Pay Corporate Tax in UAE?
The corporate tax applies to mainland companies, foreign businesses with a permanent establishment in the UAE, and selected free zone companies that conduct business on the mainland.
Exemptions and Reliefs
Businesses Exempt from Corporate Tax
The UAE government has implemented several exemptions to maintain its appeal as a business hub:
- Government entities
- Wholly owned UAE subsidiaries of government entities
- Public benefit organizations
- Investment funds meeting regulatory conditions
Tax Incentives for Free Zones
Free zone businesses that do not engage in mainland business activities may continue to enjoy a 0% corporate tax rate under specific conditions.
How to Calculate Corporate Tax in UAE
Corporate tax is calculated based on a company’s net profit as per financial statements, following globally accepted accounting standards.
Corporate Tax Brackets
- 0%: Annual taxable profit up to AED 375,000
- 9%: Annual taxable profit exceeding AED 375,000
- Different rates apply to large multinational companies under OECD’s Pillar Two framework.
Steps to Register for Corporate Tax
- Determine applicability: Check whether your business is liable for corporate tax.
- Register with the Federal Tax Authority (FTA): Obtain a corporate tax registration number.
- Maintain financial records: Ensure accurate bookkeeping for tax filing.
- File corporate tax returns annually: Submit tax returns as per FTA regulations.
Filing Corporate Tax Returns
Businesses must file corporate tax returns and make payments within 9 months after the end of their financial year. Failure to comply may result in penalties.
Impact of Corporate Tax on Business Setup in UAE
The introduction of corporate tax has minor implications for entrepreneurs. With a 0% rate for small businesses and incentives for free zone companies, the UAE remains an attractive destination to start a company.
Conclusion
Understanding corporate tax in UAE is crucial for entrepreneurs looking to establish a business. While the tax landscape has evolved, the UAE continues to offer competitive advantages for startups and investors.
For more information, visit the UAE Government Portal.
Also, check out our guide on business setup in UAE to help you start your company efficiently.
