UAE Corporate Tax – What Investors Must Know?

The business ecosystem in UAE is becoming more organized with the introduction of Corporate Tax. All companies that are established in UAE must register for Corporate Tax within 3 months of incorporation as per Federal Tax Authority. Corporate Tax is applicable to a company’s accounting profit in UAE depending on its modus operandi, location of the company and exceeding the minimum threshold criteria.

There is no corporate tax for companies with a minimum threshold limit of AED 375,000 in accounting profits yearly. Additionally, for Free Zone companies, if they fall under the ‘Qualifying Free zone Person’ category, they can enjoy Zero Percent Corporate Tax. For all other businesses with accounting profits of above AED 375,000, there is a 9% standard Corporate Tax rate applicable on the accounting profit amount.

What is a Qualifying Free Zone Person?

A Free Zone Company must fall under the Qualifying Free Zone Person Category to enjoy Zero percent Corporate Tax. For maintaining the QFZP Status their modus operandi, location, economic substance, etc., play a vital role. The company must meet all conditions stated below to fall under the Qualifying Free Zone Person (QFZP) category.

• Adequate Economic Substance – Must have a permanent establishment with staff and conduct economic activity in the region actively.
• Qualifying Income – Must earn Qualifying Income through conducting business in the UAE and internationally. (qualifying activities)
• De minimis Rule – Non-qualifying activities must be less than 5% of total revenue or AED 5 million which ever is lower.
• Audited Financial Statements – Must maintain Audited financial statements as per FTA Guidelines
• Transfer pricing Compliance – Must maintain Transfer pricing compliance when operating branch or subsidiary company
• No Election to standard regime – Must not have opted for Standard Corporate Tax regime.

This article is prepared by collecting responses from our clients who frequently ask questions about Corporate Tax in UAE. Our expert Business Consultants have listed down the questions and response so that it will be beneficial for the readers to understand the corporate tax applicability for their company in UAE.

The Gulf Region remains an attractive jurisdiction for foreign investment due to favourable tax regimes. Corporate Tax in UAE will pave way for a new income stream and reduce the dependence on mainstream revenues. When compared to the global average Corporate Tax of 23%, UAE stands at a much lower rate of 9%.

What is the difference between Corporate Tax and Value Added Tax?

Taxes are the main source of revenue for most countries globally. It helps in earning additional revenue for the country. Corporate Tax is applicable on the net profits of a company operating in a country.

FAQs – Corporate Tax in UAE

Here are few of the questions global investors have regarding the Corporate Tax Regime in UAE. To know more specific details about the latest updates on Corporate Tax, connect with our expert Business Consultants at contact@aurionuae.com

1. What is the Impact of Corporate Tax on Expats?

Non-residents who own businesses through a permanent establishment in UAE are subject to corporate tax provided they are conducting non-qualifying activity. UAE has one of the lowest corporate taxes of 9% when compared with the tax rates of other GCC Countries.

Expats having a Free Zone Company in UAE will have exemptions depending on their business operations and location. Subsequently, for a foreign entity having a branch or establishment in UAE, the Corporate Tax will be only applicable to the net profits from the UAE entity and not on the whole income of the parent company. ( Double Taxation Avoidance Agreement will come into effect). The parent company must be paying corporate tax of 15% or above in their home country based on their tax regime.

2. Are Free Zones eligible for Zero Percent Corporate Tax?

For the Free Zone to be eligible for Zero Percent Corporate Tax they must fall under the category of ‘ Qualifying Free Zone Person’. They must earn a ‘Qualifying Income’ from their business activities in UAE to enjoy Zero percent Corporate Tax. Following are the ways to earn a Qualifying income

1. Income from transactions with other Free Zone Persons provided they are the beneficiary of the goods.
2. Income from transactions with mainland or non-Free Zone persons provided they are conducting Qualifying Activity (Refer to the list of activities as per FTA below).
3. Income from ownership of qualifying Intellectual Property
4. Any other Income provided the Qualifying Free Zone satisfies de minimis requirements

Qualifying Activities List as per Federal Tax Authority: Manufacturing of goods or materials, Processing of goods or materials, Trading of Qualifying Commodities, Holding of shares and other securities for investment purposes, Ownership, management and operation of Ships, Reinsurance services, Fund management services, Wealth and investment management services, Headquarter services to Related Parties, Treasury and financing services to Related Parties, Financing and leasing of Aircrafts, Distribution of goods or materials in or from a Designated Zone, Logistics services.

3. Should New Businesses consider separate licenses for Free Zone, Mainland Operations?

With UAE-based businesses coming under the tax ambit, new companies must consider whether should they go for two business licenses for Free Zone and Mainland. So, a dual licensing scheme could be the best way to handle corporate tax obligations. The Tax classification of ‘Qualifying Income’ is the factor that determines the rate of Corporate Tax that will be applicable.

A Free Zone-based company would have a Zero Percent Tax and on Mainland, it could be 9% if the company has significant net profits above the set criteria. So for example, an export company having a mainland retail operation and a Free Zone company for overseas trading operations must keep the operations separate.

They must manage a separate book of accounts for Free Zone and Mainland Company in UAE. Establishing a holding company in the Free Zone is another option if the company is dealing with large revenues. The investor must have a significant shareholding in such a structure and must have ample cash reserves in the company.

4. Will Free Zone Special Purpose Vehicles Help in Corporate Tax Savings?

The companies operating in the Free Zone qualify for zero percent corporate tax if they only generate qualifying income. Special Purpose Vehicle structure in Free Zone can be utilized for setting up holding companies. They have ‘Participation Exemption’ for international income generated from capital gains, dividends and holding of shares of foreign companies.

5. What is the impact of Corporate Tax on Consultants, Freelancers and Influencers in UAE?

All resident individuals generating income of AED 1 Million and above through business must prepare for Corporate Tax. Individuals working as sole entrepreneurs in the field of consulting, social media, freelance, etc., fall under the Corporate Tax regime.

The Federal Tax Authority has released a detailed update on individual businesses and their applicability to corporate tax. For a self-employed person providing consulting services and earning more than AED 1 Million and profit on that, the income falls under ‘business to business activity’ conducted by a resident (‘natural person’).

What is Capital Gain Tax? Should Individuals or Companies pay Corporate Tax for Capital gains?

Capital gains tax is a direct tax paid on the profits from selling of a financial asset such as shares, real estate or a business. Any amount more than what is originally paid for the asset is treated as profit and tax is applicable on that amount.
In the UAE, the scope of Capital Gains Tax depend whether you are an individual or a company:

1. For Individuals

• 0% Tax: There is currently no personal capital gains tax for individuals in the UAE.
• Scope: You can buy and sell personal investments like property or stocks and keep 100% of the profit without paying tax to the UAE government.
• Note: Expats (especially US or UK citizens) may still owe capital gains tax in their home countries based on global income rules. 

2. For Companies (Corporate Tax)

Under the UAE Corporate Tax law capital gains are treated differently: 

Standard company Rate: Capital gains are generally included in a company’s “taxable income” and taxed at the standard 9% rate on profits exceeding AED 375,000.

Holding Company Rate:

• Key Exemptions:
  • Participation Exemption: A company pays 0% tax on gains from selling shares in another company if it owns at least 5% (or an investment of AED 4M+) and has held them for at least 12 months.
  • Group Relief: Transfers of assets between companies in the same 75%-owned group can often be done without triggering tax. 

How Aurion Business Consultants can guide investors to register for Corporate Tax?

Our expert Tax Consultants will guide investors to prepare for Corporate Tax registration. Aurion will assist in getting all the prerequisites ready for the company and help register for Corporate Tax within the first 3 months of their incorporation.

Also, depending on the business sector and activity, the Corporate Tax exemptions and incentives must be calculated in the right way to avoid any penalty. Hence, it is best advised to proceed with the Corporate Tax Registration after seeking the assistance of an experienced Business Consultant such as AURION.

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