A corporate tax is a tax levied on the profit of a business. The taxes are paid on the company’s taxable income, using the below-simplified formula:
Taxable Income = Gross revenue – COGS – Tax allowable Expenses (Deductions)
When the deduction (expenses) claimed is more than the total revenue earned by the business, the result is taxable loss.
In UAE, corporate tax will be effective for financial periods starting on or after 1st June 2023. So, if the financial year of a company starts on July 1st and ends on June 30th, then the financial period from July 1st, 2023 to June 30th, 2023 will be subject to corporate tax.
However, most businesses have a calendar year as their financial year i.e., January 1st to December 31st. In this case, the period from January 1st 2024 to December 31st 2024 will be subject to corporate tax. The due date for filing the corporate tax has not been specified yet.
Corporate tax rates vary from country to county. In UAE, the Corporate Tax rate will be 9% for taxable income above AED 375,000. For taxable income below AED 375,000, the tax will be 0%.
UAE CT Rate
AED 0 – AED 375,000
Above AED 375,000
Example: Company X’s taxable income is AED 500,000. In this case, 0% tax will be applied on AED 375,000 and 9% tax will apply on AED 125,000 (which is over and above AED 375,000), the payable corporate tax amounting to AED 11,250. Thus, the total corporate tax payable by Company X will be AED 11,250.
For large multinational corporations, whose global consolidated revenue is above Euro 750 m a different tax rate will be applied. In line with ‘OECD Pillar 2” global minimum effective tax rate, the tax rate will be a minimum 15%.
Scope of Corporate tax for individuals
Individuals will not be subject to corporate tax on salaries, income from savings, investment returns and any other income earned in their personal capacity. In other words, any income earned by individuals that do not require any commercial permit/license will not be subject to corporate tax. Individuals will only be subject to CT when they are conducting business in UAE that requires a commercial license or business permit e.g., a freelance license. Under a freelance license, if the annual income of the freelance professional exceeds AED 375,000 then it becomes subject to corporate tax.
Exemptions from UAE CT
Companies do not have to pay taxes on Capital gains and dividends earned. Similarly, some intragroup transactions will be considered exempt income from CT.
A business established in a free zone will be required to register and file a CT return. As per the information released by MoF on their website, the UAE CT regime will continue to honour the tax incentives, including the tax-free period of up to 50 years for Free Zone entities that comply with the relevant regulatory requirements and do not conduct business with mainland UAE.
A group of UAE companies can form a tax group and file a single CT return for the entire group instead of filing a separate return for each entity. A CT Group can be different from a VAT Tax Group.
UAE businesses will be required to register for CT and file one CT return per financial period (a financial period is one year). The CT return will be filed electronically for each financial period.
The UAE Federal Tax Authority will be responsible for the administration, collection and enforcement of Corporate Tax.