UAE Corporate Tax FAQ

By Introducing CT, UAE aims to cement its position as a global hub for business and investment, accelerate its development and transformation to achieve its strategic objective, reaffirm its commitment to meeting international standards for tax transparency and preventing harmful tax practices.

The UAE Corporate Tax regime is effective form 1st June 2023. A business that has a Financial year starting on 1st July 2023 and ending on 30th June 2024 is subject to UAE Corporate Tax from 1 July 2023 (which is the beginning of the first Financial year that starts on or after 1 June 2023. A business that has a Financial Year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE Corporate Tax from 1 January 2024 (which is the beginning of the first Financial year that starts on or after 1 June 2023.

The UAE has introduced a Federal Tax system that is applicable to all businesses and Commercial Activities operating within the seven Emirates (Abu Dhabi, Dubai, Sharjah, Ajmam, Umm Al Quwain, Ras Al Khaimah and Fujairah). However, there are certain exceptions like: Businesses operating in the Extraction of Natural resources.

The Corporate Tax in UAE are: • 0% for taxable income up to AED 375000 • 9% for taxable income above AED 375000, and • A difference tax rate for large multinationals that meet specific criteria set with reference to “Pillar Two” of the OECD Base Erosion and Profit Shifting project

The Objective of Pillar Two is for Large Multinational Enterprises to pay a minimum level of tax (a threshold effective tax rate of 15%) on the income rising in each jurisdiction where they operate. If a group has operation in a country where the tax is lower, a so-called top-up tax can be imposed by the holding company Jurisdiction.

All businesses subject to Corporate Tax in the UAE must register with the relevant tax authority and obtain a Tax Registration Number (TRN). The registration process involves applying along with the required documentation, such as the company’s trade license, articles of association, and proof of residency.

Any business incorporated in the UAE or that which has an establishment in the UAE is subject to Corporate Tax irrespective of the nationality or residence. Since the corporate tax is a Federal Tax, it will also be applicable across all Emirates.

If the investment in Real Estate is within an individual’s Self Capability then it is free from tax. Besides these, traction within the same company and reorganizations are not subject to Corporate Tax if the Required conditions are met.

A free zone is a distinguished area within each Emirate which provides complete foreign ownership and charge 0% tax. The aim and focus is on developing one particular industry and providing dedicated high-end infrastructure. However, to know if the free zone is Eligible for 0% tax, the business owners must contact their free zone authorities.

The following persons are exempted from UAE Corporate Tax upon Approval of an application submitted to the Federal Tax Authority: Qualifying Investment funds that meet the prescribed conditions, Public or Private pension or social security funds that meet the conditions specified in Ministerial Decision.

A qualifying free zone person is a business entity that maintains sufficient substance, generate Cabinet-specified income, adheres to transfer pricing rules, and maintains the relevant documents. If the free zone person earns non-qualifying income, they will be subject to 9% tax. However, if the total non-qualifying income is not more than 5% of their total revenue or if it is not more than AED 5 million, then they will be exempted. However, the revenue from a foreign permanent establishment within a free zone will be taxed a full 9%.

The UAE currently has more than 40 free zones. The free zone entities enjoy: • A fully functional infrastructure and a well-developed businesses community. • 100% exemptions from Corporate Tax, Customs duty, and Income Tax. • Complete foreign ownership with independent laws and regulations.

Since VAT is difference from Corporate Tax, both of these will continue to exists and regardless of whether you have registered for VAT or not, you will continue to pay CT.

Whether the income is derived from the sale of capital or non-capital assets, the treatment remains the same. The profit received from selling assets are included in annual taxable income similar to income from other businesses. However, if the profit is out of selling shares, it may be subject to exemption.

Business must maintain appropriate accounting books, including income statements, balance sheets and equity statements, in accordance with applicable accounting standards, Entities should retain these records for at least 5 years from the end of Financial years.

The Federal Tax Authority will be responsible for the administration, collection and enforcement of UAE Corporate Tax and other federal taxes. For the purpose of the administration, collection and enforcement of corporate tax, the federal tax authority will issue guides, respond to clarifications and provide awareness sessions as required.

Below are the Penalties for non-compliance of Corporate Tax in UAE: a) AED 10000 for late corporate tax registration. b) Penalties apply if records and information required by the corporate tax law are not kept up to date: AED 1000 for each fraction, AED 20000 for repeated offences committed within 24 months of past violation. c) AED 500 per month for first twelve months for late CT submission. d) AED 1000 per month from 13th month onwards for late CT submission. e) 14% per annum on unsettled Payable tax, applied monthly from the day after the due date of Payment. f) AED 500 for Incorrect submission of CT (if he didn’t correct it on the date of deadline) g) AED 5000 for not submitting tax related data, records and documents in Arabic to the authority when required. h) AED 20000 for not facilitating the Tax Auditor during a Tax Audit.