In a significant move, the United Arab Emirates (UAE) implemented a new corporate tax system to take effect starting June 1, 2023. This new policy aims to streamline the process of taxation for business while empowering the government to stimulate the local economy.
However, as is the case with change, many businesses may find it challenging to understand the scope and breadth of the new laws and processes that are being set in place. In this article, we present a straightforward overview of what you need to know about corporate tax in the UAE.
What You Should Know
Under the new corporate tax law, businesses must register for corporate tax starting from June 2023. Doing this entails managing and maintaining accounting records according to the required reporting standard. It also mandates the official filing of a corporate tax submission to the Federal Tax Authority.
The corporate tax rate is 9%, applicable to businesses with taxable income over AED 375,000. Smaller businesses with income up to AED 375,000 are exempt from corporate tax. Meanwhile, large multinational companies with a total global revenue exceeding EUR 750 million are obligated to pay a minimum of 15% corporate tax, according to specifications by the OECD Base Erosion and Profit Shifting Project.
Businesses can conveniently register for corporate tax online through the FTA’s website. This digital approach aligns with the UAE’s commitment to embracing technology for streamlined processes and it gives businesses a simplified pathway to tax compliance.
Note: All businesses are required to register and follow the new mandates, even if they don’t have to pay corporate tax.
Scope and Exemptions
The new tax system covers all businesses operating under a UAE commercial license, including those in free zones or operating offshore. Foreign entities engaged in trade or business in the UAE are also included.
However, there are entities that are exempted from this new policy:
- Government departments or public entities such as regional and federal offices, public institutions, government divisions and other such departments.
- Businesses engaged in the mining or extraction of natural resources in the UAE. These businesses are already levied taxes by the Emirates where they operate, which supersedes the need to file for a separate corporate tax report.
- Charitable organizations are also exempt from corporate tax, granted that they are registered as charity organizations under the Ministry of Finance.
- Regulated investment funds can be exempted from this new policy if they produce a formal exemption approval from the Ministry of Finance and the Federal Tax Authority.
Adapting and Thriving through Change
The introduction of Corporate Tax in the UAE is a new change for all businesses in the UAE. However, while significant in nature, it represents a fresh opportunity for entrepreneurs, startups, and even multi-national companies to take a larger role in stimulating the local economy. This new paradigm also serves as the perfect moment for organizations to streamline their operations for increased efficiency and productivity.