REGISTER FOR CORPORATE TAX AND SUBMIT YOUR TAX FILING
Now that the UAE has made new rules for business taxes, many companies need help to handle unknown laws and actions. Our tax experts are ready to help you. They’ll explain how business taxes can impact your company. We are experts in using tax breaks and reliefs, making sure things happen quickly to avoid getting fines.
If you already have a business that pays taxes, are setting up rules based on accounting standards or getting ready to submit papers we can help at every step. We want to give a simple, low-cost and easy way for your company when it changes over to the New Business Tax Laws in UAE.
To comply with the new corporate tax scheme in the UAE, every business must undertake three key actions:
Register for Corporate Tax (Starting from June 2023):
- All businesses operating in the UAE are required to register for corporate tax. The registration process begins in June 2023. Even if a business is not currently liable for corporate tax, registering is a mandatory step.
Maintain Accounting Records Meeting Reporting Standards (e.g., IFRS):
- Businesses must maintain accurate accounting records that adhere to the required reporting standards, such as the International Financial Reporting Standards (IFRS). Proper record-keeping is essential for transparency and ensures that financial information aligns with the standards set by regulatory authorities.
File Corporate Tax Submission with the Federal Tax Authority:
- Businesses, whether they have a tax liability or not, must file a corporate tax submission with the Federal Tax Authority. This submission includes comprehensive financial information, and it is a crucial step in the corporate tax compliance process.
Key Consideration: Even if a business is not currently liable for corporate tax, adherence to these steps is mandatory. It not only ensures compliance with the new regulations but also assesses the business’s eligibility for potential tax exemptions in the future. Staying proactive in fulfilling these requirements is essential for a smooth transition to the new corporate tax framework in the UAE.
Our UAE Corporate Tax Services
What is Corporate Tax UAE?
In the United Arab Emirates (UAE), corporate tax is imposed on business entities resident in the country, based on their net profit or income. As of June 1, 2023 tax reforms started getting put into practice. Most companies will become fully-taxable on January 1st, 2024.
Background of Corporate Tax in the UAE
The UAE has long been a top place for entrepreneurs and investors throughout the world, with its stable political climate, strategic geographic location within convenient airline-hour access to all leading Asian economic capitals (a fact of continuing importance even after China’s entry into WTO), excellent business infrastructure including one in three Arab couples living there’, asserts Emirates Business 24/
The UAE, especially Dubai, has found great favor both with large corporations and startups. It is no wonder that the IMF ranks it fifth among Middle East economies in size. Traditionally an oil and natural resources economy, the UAE has wisely diversified away from petroleum in recent years.
The introduction of new corporate tax laws aims to improve the UAE’s revenue structure, promote economic sustainability and match international standards in taxes. This is a major shift in policy marking an altogether new phase of development for doing business within the UAE. It departs utterly from decades of tax-free environments that have been so closely associated with this region.
Is Corporate Tax the Same as VAT?
When the UAE government first announced that it intended to introduce corporate tax, many businesses incorrectly believed this would mean Value Added Tax (VAT). Yet corporate tax and VAT are vastly different.
The main difference, however is that corporate tax must be paid by every company in the UAE. VAT, on the other hand (when it comes into force), will only apply to companies reaching a certain turnover level. VAT is a sales tax on goods and services, with customers paying it in cash at the time of purchase. On the other hand, corporate tax is based on businesses ‘taxable income.
Businesses are also subject to the corporate tax on their annual net profits, and this is paid up directly by the firm itself. This calculation is based on net income, not total revenue or sales volume of the company. Having learned about the nature of corporate tax, let us closely examine how it is done.
Who Will Be Subject to Corporate Tax UAE?
Under the general rule, that every company in the UAE including free zone firms should be subject to corporate tax with few special exceptions stipulated below.
According to the UAE Ministry of Finance (MOF), the following individuals/corporations will be liable to pay Corporate Tax in the UAE:
- Corporations and other legal entities based in the UAE or having their principle management and operation within the UAE.
- Everyone who is engaged in a business or commercial activity within the UAE.
- Foreign legal entities which maintain a Permanent Establishment in the UAE, as defined under Section 8 of the Corporate Tax Law.
From June 1, 2023 onwards all these business entities with operations within the UAE are under this new tax regime. The tax calculation period for businesses will differ based on how they report their financial year:
- Those with financial years from July 1 will calculate tax from July 1,2023.
- Beginning on January 1, 2024, firms with financial years beginning in January will commence tax calculation from.
Unless there are special circumstances, all commercial activities carried out within the UAE will have to register for and pay corporate tax.
How Much Is the Corporate Tax UAE?
The Ministry of Finance (MOF), the regulatory body for UAE corporate tax, has implemented a three-tier taxation policy:
- Businesses with net yearly profit up to AED 375,000: Taxed at 0
- Businesses with net yearly profit above AED 375,000: With a 9 % tax rate.
- Large multinational companies: Corporations with worldwide revenues in excess of EUR 750 million (equating to AED 3.15 billion) are committed to holding a minimum tax rate payable at the corporation level of no less than this figure, This corresponds to the second pillar of the OECD’s Base Erosion and Profit Shifting Project, which seeks to make sure large multinational enterprises pay their fair share in taxes.
Corporate Tax Registration
Go to the website of the Federal Tax Authority (FTA) and sign up for Corporate Tax in UAE. You must fill in the information requested on all red marks except for i and provide documents such as entity ‘s Emirates ID, trade license passport financial records details about business operations with corporate structure. The application will then be submitted to the authorities and await review. If the company is approved, it receives a tax registration number (TRN), meaning official recognition. It usually takes 20 days, with another 20 if more information is needed. GCS Group helps you process your FTA application.
UAE Corporate Tax: Exempt Persons
The Ministry of Finance (MOF) has provided exemptions for particular entities with respect to the UAE Corporate Tax. Exempt entities need not file tax reports and do not pay taxes. These include:
- Governmental or Public Entities: Federal and regional offices, departments, divisions or other public institutions.
Businesses in Natural
- Resource Extraction: UAE Entities Involved in Extracting or Mining Natural Resources and Emirate Level Taxation.
Charitable and Social
- Cause Organizations: MOF-registered organizations for charitable or social causes, following formal clearance by relevant authorities.
Real Estate and Regulated Investment Funds: Funds applying for formal exemption approval from MOF and the Federal Tax Authority (FTA).
UAE Companies Fully Owned and Controlled by the UAE Government: In order to receive tax exemption, these must be listed under a decision at the ministry level.
Public or Private Pension or Social Security Funds: Organizations satisfying the conditions as listed in Ministerial Decision No.115 of 2023.
UAE Corporate Tax: Exempt Income
In addition to exemptions, companies may qualify for tax income exemptions in specific cases:
Profit Distributions or Dividend Payments from UAE-incorporated Juridical Persons.
Dividend Payments, or Profit Distribution Based on Participating Interest in a Foreign Juridical Person.
Selling Shares of a Subsidiary Company under Ownership: Capital Gains.
Foreign Exchange Gains and Losses. Capital gains from a domestic or foreign participating interest.
Earnings by Non-residents from Operation or Leasing of Ships in International Transportation, and Aircraft.
Exemption of foreign permanent establishment–An election is made by a Permanent Establishment or Foreign Branch with respect to earnings.
For a UAE company to deduct dividend payments, it must hold at least 5 % of the shares in its subsidiary operating abroad. But the requirements for ownership may differ from country to country, e.g., 10 % for ten consecutive months in Britain.
The UAE Corporate Tax regulations are complex at GCS Group we specialize in helping companies to navigate them.
Corporate Tax for Freelancers
Corporate tax For freelancers who do work under their own name, not a corporate entity like a company, the one million AED threshold also kicks in when it comes to them.
To freelancers the UAE and Dubai in particular are more like a red carpet, not only due to eligibility for something better than favorable tax rate but also because there is an abundance of both affordable co-working spaces as well as flexible office space.
To work as an independent professional or freelancer, a UAE resident must possess a professional license. This license makes it easier to meet regulatory requirements and provides a smooth riding experience for freelancers in the hot business scene of UAE or Dubai.
Corporate Tax for Groups
If a group of two or more taxable entities meets the specified criteria, it may apply to create a ‘Tax Group’ that is treated as one entity for purposes of Corporate Tax.
To form a Tax Group, the parent firm and its branches must:
You should be resident legal entities within the jurisdiction.
Use the same fiscal year and employ identical accounting procedures in their financial documents.
In addition, for Tax Group formation, the primary enterprise must:
Hold at least 95 % of the subsidiary’s equity.
Have at least 95 % of the voting rights in the subsidiary.
At least 95 % of the subsidiary’s earnings and total assets belong to Lay.
Branch entities can directly or indirectly provide the ownership, voting rights and entitlements. But a Tax Group cannot include an Exempt Entity or a Qualifying Free Zone Entity.
The leading company of the Tax group must prepare combined financial statements for all subsidiaries in that Group within each tax period. When computing the Tax Group’s taxable earnings, operations between the primary company and its subsidiaries and also among such subsidiaries would be ignored.
Tax Income Deductions
Expenditures for assets which retain a certain value over the long run are often considered through depreciation or amortization based on useful life. If a cost has both personal and business functions, they have to be appropriately separated with only the segment that directly benefits the entity ’ s taxable operations being considered. The deductible business expenses include:
- In Cabinet Decision No, donations to charities are listed. 37 of 2023.
- For businesses with Net Interest Expenditure over AED 12 million, financing and interest costs will be deductible. This deduction is limited to 30 % of adjusted EBITDA (earnings before depreciation, amortization, tax and interest) or AED12 million.
- Royalty to a foreign group company, if necessary and done at arm’s length.
- Irrecoverable input Value Added Tax (VAT).
- The amount of deductible remuneration can be determined according to market rate considerations or by owner/ director payments, management fees paid year in and year out to affiliated entities.
- These are determined by the selected accounting method and should match up with the tax approach.
- Costs incurred through entertaining employees, for which only 50 % of the expenditure can be deducted.
- Doubtful debts, according to International Financial Reporting Standards (IFRS).
- Government, business-setup fees and license renewal.
Additional Tax Exemptions
Beyond those exceptions mentioned earlier, MOF has also detailed a number of other circumstances in which companies may qualify for tax income exemptions. These include:
Earnings from Dividend Payments
- Under Article 22 of the Corporate Tax Law, from UAE-incorporated or resident juridical persons.
- From a part ownership in foreign juridical person.
- Capital Gains
- The source of proceeds from the sale of shares in a subsidiary company under ownership.
Foreign Exchange Gains/Losses
Capital Gains from domestic or foreign participating interest.International Transportation:Earnings made by non-residents from the operation or leasing of ships or aircraft engaged in international transportation.
Foreign Permanent Establishment
Money received from a domestically located permanent establishment or foreign branch where an election has been made for the Foreign Permanent Establishment exception.
In order to be able to offset deductions from earnings resulting from dividend payments, the UAE company must possess at least 5 % of shares in the subsidiary firm operating abroad. The Details: Different countries may have their own ownership requirements. For example, in the UK a UAE shareholder entity must hold at least 10 % of ordinary shares for ten months to receive an earning that is deductible from taxation back home.
Tax Deduction for Companies with Foreign Branches
The UAE government offers options for companies with foreign branches located in the country:
Foreign Tax Credit:
Tax paid in other countries Companies with branches abroad can claim a foreign tax credit equal to that amount.
The distinction is limited to the smaller number of foreign taxes paid, or corporate tax in UAE on a corresponding revenue.
These foreign tax credits in excess of the actual amount are gratuitous and cannot be carried forward or backward to other periods.
Exemption Based on Foreign Branch Profits:
Companies can also apply for exemption on the strength of profits earned by their foreign branches outside the UAE.
These provisions are extremely flexible for companies with cross-border operations. For foreign branches operating in the UAE, they provide various choices about how to deal taxation matters.
Wrap-Up: Corporate Tax UAE
In order to keep your UAE business in conformity with changing tax policies, the only way is to know what announcements from the government of UAE are being publicized. GCS Group will find the most efficient ways to structure your business so that you don’t have any problems complying with corporate tax obligations, thanks to our team of experienced tax advisors.
For example, if you get ready ahead of time and ask for help when needed, then your business can keep up with changes in tax rules. This makes sure it follows the right laws from the start. GCS Group gives you the knowledge needed to officially sign up your business with local tax offices and easily do textile deals abroad.
Call GCS Group now and use our checked workers to make sure your business follows UAE tax rules. This will help keep you in compliance with the law.