Corporate Tax Services UAE

Corporate Tax Services in UAE

In the UAE, corporate tax works like this:

1. Net profit up to AED 375,000 is not taxed.
2. A 9% tax is applied to profits that are more than AED 375,000.
3. There are different tax rates for multinational companies following OECD Pillar 2 rules.

Significance of Corporate Tax in the UAE

Corporate tax in the UAE helps build a strong economy, improve business management, and make the country’s economy better. The government hopes that this tax will make the UAE a top place for business and investment. The goal of this tax is to help the country grow and reach its goals. It also shows that the UAE follows international tax rules and wants to stop harmful tax practices.

Why Choose the UAE?

Even though corporate tax is now in place, the UAE is still a great place for businesses. The tax rate in the UAE is one of the lowest compared to countries like France (26.5%), the USA (21%), and India (up to 30%). The UAE also has a good location, which makes it a great place to invest. So, the UAE continues to be one of the best places for business in the world.

Scope of UAE Corporate Tax

Corporate tax in the UAE applies to:

1. All businesses and individuals doing business with a commercial license.
2. Free zone businesses that meet the rules and are not located in mainland UAE.
3. Foreign businesses and people doing business regularly in the UAE.
4. Banks and companies involved in real estate, construction, development, and agencies.

Exemptions for Corporate Tax in the UAE

Some businesses and income do not have to pay corporate tax:

1. Businesses involved in extracting natural resources (they pay tax at the Emirate level).
2. Dividends and capital gains from shares in UAE businesses.
3. Certain transactions within companies that meet the requirements.
4. Salaries and employment income.
5. Interest and income from savings.
6. Income from investments made by foreign investors.
7. Real estate income owned personally by individuals.
8. Dividends and income from personal shares or securities.

Taxable Income

In the UAE’s growing business world, it’s important for businesses to understand taxable income and corporate tax rules. Mubarak Al Katbi can help guide businesses to follow the rules and reduce tax costs.

By working with Mubarak Al Katbi, businesses can manage taxes and stay compliant. Our experts will help you improve your tax strategy and avoid unnecessary costs.

Corporate Tax Rate

The UAE Ministry of Finance announced in January 2022 that the corporate tax rate would be 9%. Here’s how it breaks down:

1. 0% tax on taxable income up to AED 375,000.
2. 9% tax on taxable income over AED 375,000.
3. Big multinational companies may face a different tax rate based on certain conditions.

Businesses need to prepare for these changes to avoid any problems.

UAE-Sourced Income

Under the UAE Corporate Tax law, income from businesses based in the UAE or linked to a permanent office (PE) is considered UAE-sourced income. For example, if a UK company has a branch in the UAE, income from that branch is taxed in the UAE. Similarly, income from services or assets located in the UAE, like insurance for UAE properties or residents, is also taxable in the UAE.

UAE residents pay tax on worldwide income, while non-residents only pay tax on income from the UAE.

Corporate Tax on Free Zones

The UAE corporate tax law has special rules for “Qualifying Free Zone Persons” (QFZPs). To qualify, a free zone business must:

1. Have a real presence in the UAE.
2. Earn income that meets the rules.
3. Follow transfer pricing rules.
4. Meet any other conditions set by UAE authorities.

QFZPs may have a 0% tax rate on qualifying income. Other income is taxed at the standard 9% rate. Businesses in free zones that meet the rules can benefit from these tax breaks.

Tax Losses and Implications

If a business has losses, it still needs to pay its expenses. However, businesses can use losses from previous years to reduce future tax bills. This helps businesses save on taxes and perform better financially, even in tough times.

Mubarak Al Katbi can help businesses make the most of these loss-offset rules to reduce tax costs.

Basic Points to Remember Before Calculating Corporate Tax

When calculating corporate tax in the UAE, it’s important to know the tax rates for different types of businesses:

1. 0% for taxable income up to AED 375,000.
2. 9% for taxable income over AED 375,000.
3. Free zone businesses that meet the requirements can have a 0% tax rate on qualifying income. Other income is taxed at the 9% rate.

Businesses also need to know their tax periods and whether they are resident or non-resident taxpayers.

Exemptions and Special Cases

Some businesses and activities don’t have to pay corporate tax in the UAE:

1. UAE Government Entities: The UAE government and government-owned companies are exempt from corporate tax under certain conditions.
2. Natural Resource Extraction: Businesses in this field still pay tax at the Emirate level.
3. Investment Funds: Some funds that meet the conditions are exempt from tax.
4. Public Benefit Entities: These entities meet specific criteria under UAE rules.

Taxable Persons in the UAE

Businesses are considered taxable persons in the UAE if they meet one of these criteria:

1. Resident Taxable Persons: This includes UAE-based companies, people doing business in the UAE, and foreign businesses controlled in the UAE.
2. Non-Resident Taxable Persons: Foreign businesses with a permanent office in the UAE or those earning UAE-based income.

Income Exempted from Corporate Tax

Some income is exempt from corporate tax in the UAE:

1. Employment Income: Salaries and wages are not taxed.
2. Investment Income: Income from personal investments like dividends and capital gains is exempt.
3. Real Estate Income: Income from real estate investments owned personally is also exempt.

Businesses should talk to tax experts to make sure they qualify for these exemptions.

Corporate Tax Reporting and Filing Deadlines

Once a business has to pay corporate tax, it needs to file an annual tax return. The deadline for this is usually 9 months after the end of the tax period. Businesses need to keep good accounting records to file taxes correctly.

Companies with earnings under AED 3 million may qualify for small business relief. This allows them to file a simpler tax return and pay 0% tax until 2026.

Corporate Tax Penalties

Not following the rules can lead to penalties. Businesses that don’t keep proper records or miss tax deadlines can get fined. Businesses that fail to register for corporate tax on time may face fines up to AED 10,000.

To avoid penalties and stay compliant, businesses should get help from Mubarak Al Katbi. Our tax professionals will make sure your business follows the rules and submits taxes on time.

Transfer Pricing and International Taxation

The UAE corporate tax rules include transfer pricing to make sure that related businesses follow fair pricing for their transactions. Multinational companies need to keep good records to follow transfer pricing rules.

Mubarak Al Katbi helps businesses follow these rules and avoid tax issues. Our team will make sure that related-party transactions meet international standards.

Corporate Tax Calculation and Adjustments

When calculating corporate tax in the UAE, businesses need to understand both basic and complex factors. Corporate tax is calculated on net profit, but businesses must make adjustments to meet tax rules.

Some income, like dividends from shares, is not taxed, and businesses need to exclude some expenses, like fines or entertainment costs, when calculating taxable income.

Deductions and Exemptions for Corporate Tax in the UAE

Businesses can reduce taxable income by deducting some expenses:

• Operational costs like rent, wages, and utilities.
• Depreciation on business assets.
• Loan interest used for business purposes.

Exemptions also apply to income from government-owned businesses and natural resource extraction.

Free Zone Businesses and Corporate Tax

Free zone businesses still get tax benefits, but now there are new rules. To get tax breaks, free zone companies must meet certain conditions like having a real presence in the UAE, earning qualifying income, and following transfer pricing rules.

If a free zone company doesn’t meet the criteria, it will be taxed at the regular 9% rate.

Corporate Tax for Multinational Corporations

For large multinational companies, the tax rules are more complicated. Companies with revenue over EUR 750 million (about AED 3.15 billion) need to follow additional rules, including possibly paying a 15% tax.

This is part of the Global Anti-Base Erosion (GLOBE) rules to prevent tax avoidance. UAE tax laws are following these global standards.

Tax Loss Carryforward

Businesses that face losses can use them to reduce future taxes. This allows companies to pay less tax in profitable years.

This rule is helpful for businesses during tough times. Businesses can carry their losses forward to reduce tax costs later.

Tax Filing and Documentation Requirements

Businesses need to keep proper financial statements and submit them as required by tax rules. Companies with over AED 50 million in revenue need to have their taxes audited.

Businesses should also keep their accounting records for 7 years to make sure they can back up their tax filings.

Small Business Relief

Small businesses with yearly revenue under AED 3 million can apply for relief. They can pay 0% tax and file a simpler return. To qualify, they must meet certain conditions.

International Tax Considerations and Double Taxation Agreements (DTAs)

Businesses working internationally should know about double taxation agreements (DTAs) between the UAE and other countries. DTAs help businesses avoid paying tax twice on the same income.

By understanding DTAs, businesses can improve their international tax strategy.

Corporate Tax Compliance and Penalties

Not following corporate tax rules in the UAE can lead to big fines. Businesses must meet deadlines and keep proper records to avoid penalties.

What Can Help Mubarak Al Katbi in Corporate Tax in UAE

Dealing with corporate tax in the UAE can be tricky. But businesses can get help from Mubarak Al Katbi to stay on top of the rules. Our team will help businesses make sure they follow tax laws, file taxes on time, and get the best tax strategy.