On December 9, 2022, the UAE Ministry of Finance introduced the corporate tax in the Emirates. The new legislation subjects businesses to a 9% business tax beginning 1 June 2023.
Also known as business profit tax or corporate income tax, corporate tax in the UAE is part of the country’s initiatives to boost non-oil revenue and strengthen its position as a leading global business hub.
What is corporate tax?
Corporate tax is a levy on the net profit of businesses. This tax is usually imposed on a national level, and the rate varies per country.
The general principle of corporate tax is that the higher profit an organization generates, the larger tax it would have to pay. However, corporate tax can be lowered by various deductions and government subsidies.
Overview of corporate tax in the UAE
According to the UAE Federal Tax Authority, corporate tax in the UAE was introduced to help the country achieve its strategic objectives and accelerate its development and transformation. In addition, it helps the country adhere to global business best practices and taxation standards.
As per the UAE Ministry of Finance, not all businesses are subject to paying corporate income tax. If the taxable income of the business does not exceed AED 375,000, its corporate tax will be 0%. Meanwhile, businesses with a taxable income of more than AED 375,000 is subject to a 9% corporate tax.
Who is subject to corporate tax?
Companies and individuals who run businesses in the UAE will be required to pay corporate tax, including:
- UAE companies incorporated within the country. Businesses in the free zones, meanwhile, are exempt from paying the corporate income tax even when dealing with the mainland on certain strategic activities such as manufacturing, goods processing, and logistics services.
- Foreign entities and individuals who conduct trade or do business in the UAE in a continuous manner
- Businesses engaged in real estate management, construction, development, agency, and brokerage activities
- Banks and other financial institutions
- Foreign companies (also called non-resident juridical persons) must pay corporate tax on income made from real estate and other immovable property in UAE. These companies who own real estate that are used in business as well as those held as investments are also required to pay corporate tax. On the other hand, income derived from investment in real estate by individuals in their personal capacity – not as part a licensed business activity – is not subject to corporate income tax.
Who is exempt from paying corporate tax?
Among those exempted from paying the corporate tax in the UAE include:
- Government and government-controlled entities
- Businesses engaged in the extraction of the country’s natural resources
- Dividends and capital gains earned by a UAE business from its qualifying shareholdings
- An individual earning salary and other employment-related income, whether in the public or the private sector
- Interest and other income earned by an individual from bank deposits or saving schemes
- A foreign investor’s income earned from dividends, capital gains, interest, royalties, and other investment returns
- Dividends, capital gains, and other income earned by individuals from owning shares or other securities in their personal capacity.
UAE corporate tax rate calculation 2023
If a business records an income exceeding AED 375,000, that entity would be required to pay 9% of the portion that exceeds AED 375,000.
For example, suppose a company’s taxable income for 12 months is AED 675,000. That company will be required to pay 0% on AED 375,000, but they will have to pay 9% of the remaining AED 300,000. Therefore, that entity’s corporate tax will be AED 27,000.
Corporate tax deadlines
The Ministry of Finance allows a generous timeframe of up to 21 months from the beginning of their financial year to prepare for the filing and payment of the corporate income tax. This means that businesses with a financial year that begins on June 1, 2023, and ends on May 31, 2024, would have until February 28, 2025, to file their corporate tax returns and make the necessary payment.
Meanwhile, businesses with a financial year that begins on January 1, 2024, and ends on December 31, 2024, will have until September 30, 2025, to file their corporate income tax.
For more on the corporate tax, click here.