How Is Corporate Tax Different From Value Added Tax In UAE?
The UAE is a well-known hub for business with its attractive rules for local and foreign companies. Anyone starting a company in Dubai must learn about the different taxes, including corporate tax and value-added tax (VAT). Knowing the difference between these two taxes can help your business stay legal and avoid mistakes.
Understanding Corporate Tax in UAE
The UAE did not use to have a federal corporate tax for most companies. This changed when the government introduced a new corporate tax law. The UAE now charges tax on business profits, and the new law started after December 9, 2022. This law helps the country move away from oil dependence and build a stronger economy.
Main facts about UAE Corporate Tax:
- The government collects corporate tax on profits earned by companies.
- The main goal is to boost income from new sources.
- This law applies to most companies, but there are some exceptions.
Who does NOT pay UAE corporate tax?
- Companies in free zones (if they meet special rules).
- Companies that extract natural resources (like oil), because they pay emirate-based tax.
- Individuals earning only salaries or income from investments.
Other exemptions include:
- Profits from transactions inside a business group.
- Dividends from UAE and foreign companies.
- Profits from group reorganizations.
Corporate Tax Rates in UAE
- 0% tax on profits up to AED 375,000.
- 9% tax on profits above AED 375,000.
- Some large multinational companies face special rules if they meet global tax requirements.
You can also read: What Are The Expenses That Cannot Be Deducted While Calculating The Corporate Tax?
Value Added Tax (VAT) in UAE
Value-added tax, or VAT, is another important tax in the UAE. The government started VAT on January 1, 2018. VAT is a general consumption tax, which means it is charged on most goods and services. Over 150 countries use VAT as a way to collect money for public spending.
Key Points About VAT:
- VAT rate is 5% in the UAE.
- Businesses must register for VAT if their taxable supplies and imports are above AED 375,000.
- VAT is charged at each stage of production or service delivery.
- Companies in free zones usually don’t pay VAT if they follow special rules.
- At the end of a tax period, VAT-registered businesses must submit a VAT return to the FTA.
VAT Exemptions in UAE
Not everything is taxed under VAT law. Here are some exempt supplies:
- Certain financial services (as listed in the VAT law)
- Residential properties
- Bare land
- Local passenger transport
Key Differences Between Corporate Tax and VAT
Let’s break down the most important differences:
- Nature of tax: Corporate tax is based on company profits, while VAT is charged on what people buy and use.
- Who pays: Companies pay corporate tax, while end-consumers pay VAT when they buy things or use services.
- How it’s calculated: VAT is charged at each step in the supply chain. Corporate tax is based on profit at the end of the year.
- Filing: Companies file and pay corporate tax on profits. With VAT, companies collect it from customers and pay it to the government.
- Purpose: Corporate tax increases government income from company profits. VAT helps raise revenue from consumer spending.
Why Understanding Taxes Matters for UAE Businesses
Businesses need to follow both corporate tax and VAT rules to stay compliant. Not following tax laws can cause heavy penalties, fines, or even business closure. That’s why business owners should work with experts who understand the local laws and international standards.
Common Mistakes Companies Make
- Not registering for VAT or corporate tax on time.
- Missing tax return deadlines.
- Mixing business and personal expenses.
- Not keeping clear records of sales, purchases, and expenses.
- Not understanding which exemptions apply.
How Can Mubarak Al Ketbi (MAK) Auditing Help?
Mubarak Al Ketbi (MAK) Auditing can assist with:
- Registering your business for VAT and corporate tax
- Filing tax returns on time
- Helping you claim tax exemptions and deductions
- Auditing your company’s accounts for accuracy
- Providing professional advice on UAE tax laws
For more information visit our office:
- Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Or contact/WhatsApp on this number +971 50 276 2132
Remember, “A stitch in time saves nine!” Taking early action with your taxes will save you from big problems later.
