Corporate Tax - Frequently Asked Questions (FAQs)
Corporate Tax General Queries
Every Taxable person, including Free Zone person, needs to register for Corporate Tax and get a Registration Number.
Yes, every company in the UAE, regardless of exemption status, is required to file a tax return. This is essential to demonstrate compliance with Corporate Tax regulations.
The Corporate Tax rates in the UAE are structured as follows:
- 0% for taxable income up to AED 375,000
- 9% for taxable income exceeding AED 375,000
Different tax rates may apply to large multinational enterprises based on OECD Pillar Two criteria. There are also companies that are exempt from Corporate Tax.
The financial year for most companies in the UAE begins on January 1, 2024, aligning with the full implementation of Corporate Tax. However, there are companies that have started their financial year from 2023 Onwards, hence Corporate Tax will be accordingly applicable for the respective financial year.
It is recommended to adhere to International Financial Reporting Standards (IFRS) for their accounting practices. However, specific standards may apply based on the size and nature of the business.
Businesses in the UAE will have up to 9 months from the end of the relevant tax period to submit their tax return and pay the Corporate Tax to the Federal Tax Authority (FTA)
Non-compliance with Corporate Tax regulations in the UAE can result in penalties, fines, and legal actions. It is important for businesses to ensure they are in full compliance with tax laws to avoid such consequences.
The Federal Tax Authority (FTA) is the regulatory body responsible for the administration, collection, and enforcement of Corporate Tax in the UAE.
Certainly, ITC Tax Consultancy helps businesses get ready for corporate tax, ensuring they understand and follow the Corporate Tax rules to remain in compliance.
The Federal UAE CT Law, which is effective for each taxable person’s new financial year beginning on or after 1 June 2023, will be applicable across all Emirates and will apply to all business and commercial activities, except to the following exempt persons (subject to conditions):
- UAE government entity.
- UAE government-controlled entity.
- Person engaged in an extractive business in the United Arab Emirates.
- Person engaged in a non-extractive natural resource business in the United Arab Emirates.
- Qualifying public benefit entity.
- Qualifying investment fund.
- Public pension or social security fund, or a private pension or social security fund that is subject to regulatory oversight of the competent authority in the state and that meets any other conditions that may be prescribed by the Minister.
- A juridical person incorporated in the state that is wholly owned and controlled by certain exempt persons.
- Any other person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister.
Free Zones & Designated Zones
All Free Zone companies must register, maintain proper accounting records, and file tax returns. Specific eligibility criteria must be met for a Free Zone business to qualify for an exemption.
Corporate Tax applies to Qualifying Free Zone Persons at the following rates:
- Qualifying Income – 0%
- Taxable Income that is not Qualifying Income – 9%
As of the latest information, audited financials are not mandatory for organizations with revenue less than AED 3 million. Audited financials are needed for companies with a turnover exceeding AED 50 million and qualifying free zone entities benefiting from 0% tax regardless their turnover.
: A qualifying Free Zone person refers to an individual or entity meeting specific criteria that make them eligible for a zero per cent tax rate in designated Free Zones. These criteria may include certain business activities and structures. Consult with tax authorities for detailed requirements.
As of the latest information, Taxable persons deriving revenue exceeding AED 50 million during the relevant tax period and all Qualifying Free Zone Persons are required to prepare and maintain audited financial statements for the purpose of CT.
(Refer Article 2 of Ministerial Decision No. 82 of 2023.)
Free Zone companies doing business outside the UAE are typically categorized as Free Zone companies.
: A 0% rate of Corporate Tax applies to Qualifying Income earned by certain Free Zone entities (known as Qualifying Free Zone Persons). Any Taxable Income that is not Qualifying Income will be subject to tax at the general rate of 9%.
A Qualifying Freezone refers to specific Free Zones where entities meeting certain criteria may benefit from a zero per cent tax rate. The criteria may include the nature of business activities and other qualifying factors. Check with tax authorities for detailed requirements.
Freezone companies must adhere to the activities specified in their license and not engage in business outside the Freezone.
Yes, Freezone companies can conduct international business without jeopardizing their tax-exempt status.
Dividends distributed by Freezone companies are typically exempt from taxation.
Companies may need to establish a presence in the mainland and comply with mainland regulations if they wish to operate outside the Freezone.
Yes, Freezone companies can open bank accounts in the UAE for business purposes.
Generally, Freezone companies are not subject to withholding tax on international payments.
While it may not be mandatory, Freezones may require companies to submit audited financial statements.
Freezone companies typically have more flexibility in hiring expatriate employees compared to mainland companies.
Yes, some Freezones allow companies to engage in multiple activities under a single license.
Some Freezones or emirates may offer specific incentives or exemptions for SMEs. It’s advisable to check with the relevant authorities.
Small and Medium Enterprises (SMEs)
In the UAE, SMEs are defined based on their annual turnover. Small and Medium Enterprises (SMEs) are companies with an annual turnover between AED 3 million and AED 375 million. This includes both free zone and mainland companies.
The definition of SME is wrong as per the regulations in UAE. Please refer to the SME classifications below as per Dubai SME regulation. Links are included below for information.
Categories | Government Classification in UAE- Revenue- Manpower- |
Micro- | 0-10M < =20 employees |
Small | 10-100 M – >20 and <=100 employees |
Medium | 100-250 M- >100 and <=250 employees |
Some emirates may have introduced local fees or taxes, and SMEs should be aware of emirate-specific regulations.
Some Freezones or emirates may offer specific incentives or exemptions for SMEs. It’s advisable to check with the relevant authorities.
UAE CT provides tax relief for small businesses. A tax resident can opt out of taxable income if revenue stays below AED 3 million in each relevant tax year.
There was no specific simplified tax regime for micro-enterprises, but regulations may change.
SMEs may be eligible for various government initiatives, grants, or subsidies. It’s recommended to check with local authorities.
While it may not be mandatory for all SMEs, some regulations or lenders may require audited financial statements.
SMEs need to comply with UAE labor laws, including deductions and contributions related to employee taxes.
Small company relief eligibility is generally based on the turnover of the previous financial year. Ensure compliance with the specific regulations in force during the relevant tax period.
Small business relief will apply as per FTA guidelines for small business relief for the Specific Organization types and subject to approval from the FTA.
While relief is generally advantageous, businesses should assess their individual circumstances. In some cases, specific conditions or implications may make it more beneficial not to apply for relief. Seek professional advice for a tailored assessment.
the small business relif applies only when the tax patyer do not cross the 3 m threshold, if crossed it will be treated as regular tax payer in the tax period where this threshold exceeded.
Accumulated losses may impact tax liabilities, and their treatment can vary. Consult with tax professionals to assess the specific implications of accumulated losses when opting for SME status.
SME status eligibility is typically based on individual company financials, not the geographic location. Each company should independently meet the criteria to qualify for SME status.
Mainland Companies
For taxable income up to AED 375,000 – tax rate is nil and for taxable income exceeding AED 375,000 – tax rate is 9%.
Mainland companies have more flexibility in engaging in various business activities compared to Freezone companies.
Dividends distributed are generally non- deductible or disallowed expenses for CT.
Yes, most of the companies that get started on mainland nowadays enjoy the right to 100% foreign ownership.
Mainland companies need to comply with UAE labor laws, including deductions and contributions related to employee taxes.
Mainland companies can conduct international business without restrictions, subject to compliance with relevant regulations.
Some sectors or activities may be eligible for specific incentives or exemptions. It’s advisable to check with authorities.
Mainland companies can establish branches in other emirates after obtaining the necessary approvals.
Mainland companies typically have fewer restrictions on repatriating profits compared to Freezone companies.
Freelancers
Yes. If turnover is more than 1 Million.
Freelancers can typically deduct business-related expenses when calculating their taxable income.
Yes, freelancers can open business bank accounts to manage their professional finances.
Income earned from international clients is generally subject to taxation in the UAE.
While not mandatory, some freelancers may be required to provide financial statements for certain purposes.
Freelancers may not have the same hiring flexibility as companies, and hiring employees may involve specific regulations.
Freelancers should ensure that the services they offer comply with UAE laws and regulations.
Some Freezones or authorities may offer incentives or exemptions for freelancers in certain industries.
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