Navigating Corporate Tax Regulations in the UAE

The UAE’s transformation from a tax-free corporate atmosphere to a structured corporate tax system presents a noteworthy revolution for companies working in the country. Starting in June 2023, the UAE started a corporate tax regime, which aligns with global standards to have additional government tax revenue and to inspire foreign investment. Small Businesses are key for these businesses to be compliant and take advantage of the available exemptions otherwise this new tax regime will lead you to suffer the consequences. In this article, we will see the Corporate Tax Regulations in the UAE.

What subject is Corporate Tax in the UAE?

The Corporate tax in the UAE applies to a highly diverse range of businesses and organizations. Companies in the UAE or foreign companies doing substantial business activities in the UAE and free zone entities trading in the mainland are subject to tax. Partnerships and sole establishments are also covered by the law for them to be able to comply with the regulation. However, some natural resource extraction activities are exempted, and continue to be taxed at the emirate level.

Also, small businesses whose revenues are too small to support standard rates or exemptions may be qualified for reduced rates or exemptions. This structure is designed to support the UAE’s adaptation to the global tax standards as well as encourage foreign investment and maintain attractiveness.

What are the Corporate Tax Rates and Applicability in the UAE?

The UAE corporate tax system is competitive and business-friendly. It offers diverse tax rates for several types of businesses and income thresholds such as;

• Any entity is liable to a 9% tax on its recoverable taxable income exceeding AED 375,000. This applies as an overall rate to most companies including those located on the mainland and some free zones.
• Startups and small businesses boast from a 0% corporate rate of taxable income up to AED 375,000.
• Qualifying Free Zone entities are qualified for a 0% tax rate on derived income from explicit activities. To remain tax-exempt, these companies must meet specific regulatory requirements (for example, economic substance regulations).
• If large multinational corporations have their effective tax rate below 15%, they may additionally be subject to additional measures in the OECD’s Global Minimum Tax.

What are the key Deadlines for Registration and Filing in the UAE?

• Businesses have to meet strict deadlines as per the UAE’s corporate tax law. If you fail or miss these deadlines, you can face some substantial penalties.

• Companies incorporated before June 1, 2023, are encouraged to register for corporate tax by their effective date of incorporation. For example, companies that receive licenses in July 2023 have until September 30, 2024, to register​.
• Companies must file annual corporate tax returns within nine months from the end of their financial year. For example, if a business’s financial year ends on December 31, the deadline for filing returns will be September 30, 2024 ​.
• Failing to file returns on time can mean daily accumulating fines, starting at AED 10000. Business license suspensions, legal actions, and loss of reputation could also be part of non-compliance.

What are the Exemptions from Corporate Tax in the UAE?

Some entities and income streams are exempt from corporate tax. It ensures that the UAE always be the attraction for specific sectors. Some sectors that are exempted are;

• Corporate tax does not apply to UAE federal and emirate-level government bodies.
• Non-profit entities engaged in activities that operate for the public benefit or do not operate for the private benefit of individuals are exempt if they satisfy certain criteria.
• As a 0% tax rate on income to Free Zone entities, this is provided that those entities have sufficient substance and that they adhere to transfer pricing rules.
• A company involved in the extraction of natural resources can still be entitled to tax exemptions under emirate-level regulations.

What are the required documents required for corporate tax registration in the UAE?

The listed key documents are required for businesses to register for corporate tax in the UAE;

• Trade License
• Shareholding Information
• Contact Information
• Identification Documents
• Financial Statements
• Memorandum of Association (MOA)
• Legal Documents for Foreign Entities

Conclusion

The introduction of corporate tax in the UAE is a huge turnaround for business. It enforces new compliance obligations. But there are numerous exemptions and incentives put in place as above mentioned to encourage business growth, with particular support for small enterprises and Free Zone companies. It is suggested to get assistance from Farahat & Co. Their proficient team can help to address all the issues timely.