For organizations that have a permanent establishment in UAE, the Government has introduced a Corporate Tax of 9% starting from 1 June 2023. Companies having a net profit of AED 375,000 and above are subject to Corporate Tax.
Corporate Tax is a type of direct tax levied on the net profits of companies by the Government of a Country. It is a source of income for the Government to carry out developmental activities.
The Gulf Region remains an attractive jurisdiction for foreign investment due to favorable tax regimes. Corporate Tax in UAE will pave way for a new income stream and reduce the dependence on mainstream revenues.
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.
There is a significant difference between direct and indirect tax. Value-Added Tax (VAT) and Excise Taxes are indirect taxes the business collect on behalf of the government. The tax is borne by the end customer during the point of sale.
Corporate Tax in UAE – Updates from Federal Tax Authority
As per the Federal Tax Authority, there are certain exemptions and incentives for companies operating across various sectors. Using the incentives and deductions the companies will not be paying the statutory Corporate Tax rate of 9% and it could be a lesser percentage in actuality.
Also, the Corporate Tax updates indicate that the startups incurring costs and losses in the initial years can carry forward their losses indefinitely and set off their profits over the coming years.
Furthermore, companies with a threshold below the defined figure are exempt from corporate tax. AED 375,000 is the minimum threshold of net profit for a company to fall under the Corporate Tax regime.
Businesses operating in strategic sectors such as natural resources, electricity generation, investment funds, etc., have several exemptions. Also, Free Zone companies are exempt from the Corporate Tax upon meeting certain conditions.
Importance of Corporate Tax for GCC Economies
Corporate Tax is a source of a new income stream for countries. Four out of six GCC countries have corporate tax regimes ranging from 10 % in Qatar, 15 % in Kuwait & Oman, and 20% in Saudi Arabia.
Corporate Tax varies by country and UAE is a Tax Haven due to the low rates. The introduction of Corporate Tax is to fund the developmental activities of the country and provide better infrastructure for the residents.
FAQs – 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 email@example.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. 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. 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.
2. How Tax Treaties Mitigate Corporate Tax for Non-Residents?
GCC countries have a Double Taxation Treaty (DTT) with most foreign countries. It is to eliminate double taxation. It plays a major role in mitigating corporate tax for non-residents forming a permanent establishment in other countries.
3. How do Countries monitor Corporate Tax?
There are tax compliances set by various countries. The Governments have developed a software application to easily submit company documents. The organizations can submit Business contracts, tax returns, and declarations online via the Government’s portal.
Thereby, the Tax Authorities can cross-verify the information easily and initiate tax audits depending on any discrepancies found in the records.
4. Are Free Zones Exempted from Corporate Tax?
There are certain compliance obligations the Free Zone company or individual must meet to be qualified for the corporate tax exemption. The Ministry will be sharing the guidelines in detail soon.
As per sources, any income generated by the Free Zone by trading within the same Free Zone or any Free Zone in the country may be considered as a qualifying income and no tax will be applied.
5. What are the Prerequisites for Tax Payers?
- The taxpayers must register for Corporate Tax with FTA and obtain a Corporate Tax Registration Number (TRN)
- Prepare the financial statements in compliance with the accounting standards accepted in UAE
- Conduct an audit of the financial statements and get certification from a third-party financial auditor
- Maintain all the records and documents relating to the tax returns for at least seven years.
- There is a 9-month deadline for filing the corporate tax return and paying the tax.
- There will be penalties if the taxpayer does not comply with the Corporate Tax rules in UAE
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 companies within the specified date of 1 June 2023.
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.
To know more about Corporate Tax Registration in UAE, Connect with our expert team right Away!
Contact Us: Aurion Business Consultants