Everything You Need to Know About Corporate Tax in the UAE

Have you ever considered the UAE a starting point for your business to grow? Well, if you haven’t, you should because it has to offer many benefits.

The UAE is known to be the leading business hub for entrepreneurs and multiple small and medium-sized companies due to its corporate-friendly environment, tax-free regulations, and several exemptions. There have been some recent changes sparking in the current tax regime, which has left every business raising many questions. Here’s everything you need to know about the current trends in corporate tax in the UAE.

Understanding Corporate Tax

Corporate tax is the direct form of tax eligible on the profitable income. This is how the government generates revenue that aids in funding public services and infrastructure. The UAE previously had a tax-free environment, but due to the only one basis of revenue generation, which is oil, the Federal Decree-Law announces corporate tax to diversify the economic growth, which is still lower than the global tax standards.

Main Attributes of the UAE Corporate Tax

The UAE has announced the new corporate tax regime, which was effective from 1 June, 2023,

Considering some of the main attributes.

Tax Rate:

The 9% UAE corporate tax is applicable on the profitable income that is more than AED 375,000, whereas 0% on the income lower than it for the diversification of the country’s revenue. There is a different action plan of corporate tax for the MNCs under OECD’s Base Erosion and Profit Shifting (BEPS) rules. The taxable income for the MNCs is 15%.

Applicability:

The new corporate tax regime is applicable to the multinational or international entities, all the

Legal corporations working in the UAE.

Exemptions from Corporate Tax:

There are certain corporations that are exempted from the UAE corporate tax rate. The entities include:

Compliance Requirement

All the businesses must be registered with the Federal Tax Authority (FTA), which is responsible for paying the corporate tax.

The tax returns must be submitted by the end of every fiscal year. They will indicate income, deductions, and payable income.

The businesses must have to keep proper records and supportive documents for a minimum of seven years.

Benefits of Corporate Tax in the UAE

The UAE might get some benefits for itself, which can be:

There will be no filing for income tax for the residents of the UAE.
The revenue that is generated will aid in economic development. The tax will be benefiting the infrastructure, healthcare, and education.
The competitive tax policy attracts the foreign investors as the revenue is aligned with the international standards.

Challenges and Concerns

The insertion of corporate taxation would have its own challenges.

Businesses that have managed without taxes until now will take time to learn new systems.
Smaller enterprises will face heavy costs and paperwork in compliance.
Tax incentives can affect the attractiveness of free zones.

The UAE has now significantly provided all the charms to the businesses and investors by introducing the competitive corporate tax aligning with the international standards. This sustainable growth will enhance the economic development focusing on the diverse sectors for the generation of revenue.

Where it has introduced the major responsibilities on businesses, it has also provided the commitment to global compliance. Although the corporate tax rule is a new transition, businesses tend to grasp it effectively.