CORPORATE TAX
What is Corporate Tax?
Is a form of direct tax levied on the net income or profit of corporations and other business entities. It is also commonly known as ‘Corporate Income Tax’ or Business Profits Tax.
UAE Corporate Tax Rate
As Per the Cabinet of Ministers Decision No. 116 published on 16 January 2023, a standard rate of 9% (nine percent) will apply to taxable income exceeding a threshold of AED 375,000, and a rate of 0% (0 percent) will apply to taxable income not exceeding that threshold.
Who is subject to Corporate Tax?
All businesses and individuals conducting business activities under a commercial license in the UAE
- UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE;
- Natural persons (individuals) who conduct a Business or Business Activity in the UAE as specified in a Cabinet Decision to be issued in due course; and
- Non-resident juridical persons (foreign legal entities) that have a Permanent Establishment in the UAE
Juridical persons established in a UAE Free Zone are also within the scope of Corporate Tax as “Taxable Persons” and will need to comply with the requirements set out in the Corporate Tax Law. However, a Free Zone Person that meets the conditions to be considered a Qualifying Free Zone Person can benefit from a Corporate Tax rate of 0% on their Qualifying Income.
Non-resident persons that do not have a Permanent Establishment in the UAE or that earn UAE-sourced income that is not related to their Permanent Establishment may be subject to Withholding Tax (at the rate of 0%). Withholding tax is a form of Corporate Tax collected at source by the payer on behalf of the recipient of the income. Withholding taxes exist in many tax systems and typically apply to the cross-border payment of dividends, interest, royalties and other types of income
UAE Corporate Tax Registration:
All taxable persons are required to register for UAE Corporate Tax and obtain a Corporate Tax Registration Number as per the UAE Corporate tax law and all subsequent ministerial decisions. The Federal Tax Authority may also request certain Exempt Persons to register for UAE CT. The following documents required for Corporate Tax Registration in UAE
- Copy of Trade License
- Passport copy of the owner/partners who own the license
- Emirates ID of the owner/partners who owns the license
- Memorandum of Association (MOA) or Power of Attorney (POA)
- Concerned person’s contact details (Mobile Number and E-mail)
- Contact details of the company (complete address and P.O. Box
- Corporate Tax Period
In line with the tax regimes of most countries, the Corporate Tax Law taxes income on both a residence and source basis. The applicable basis of taxation depends on the classification of the Taxable Person..
- A “Resident Person” is taxed on income derived from both domestic and foreign sources (i.e. a residence basis).
- A “Non-Resident Person” will be taxed only on income derived from sources within the UAE (i.e. a source basis) Residence for Corporate Tax purposes is not determined by where a person resides or is domiciled but instead by specific factors that are set out in the Corporate Tax Law. If a Person does not satisfy the conditions for being either a Resident or a Non-Resident person then they will not be a Taxable Person and will not therefore be subject to Corporate Tax.
UAE businesses only need to file one Corporate Tax return per tax period, which is generally due within 9 months following the end of the Tax Period. The UAE Corporate Tax return must be filed electronically. To find out more about e-filing corporate tax returns in the UAE, Please contact us: THE BOOKKEEPER DMCC, Dubai, UAE
Taxable Persons are required to file a Corporate Tax return for each Tax Period within 9 months from the end of the relevant period. The same deadline would generally apply for the payment of any Corporate Tax due in respect of the Tax Period for which a return is filed.
When can a Free Zone Person be a Qualifying Free Zone Person?
A Free Zone Person that is a Qualifying Free Zone Person can benefit from a preferential Corporate Tax rate of 0% on their “Qualifying Income” only.
In order to be considered a Qualifying Free Zone Person, the Free Zone Person must:
- maintain adequate substance in the UAE;
- derive ‘Qualifying Income’;
- not have made an election to be subject to Corporate Tax at the standard rates; and
- comply with the transfer pricing requirements under the Corporate Tax Law.
The Minister may prescribe additional conditions that a Qualifying Free Zone Person must meet.
If a Qualifying Free Zone Person fails to meet any of the conditions, or makes an election to be subject to the regular Corporate Tax regime, they will be subject to the standard rates of Corporate Tax from the beginning of the Tax Period where they failed to meet the conditions