The United Arab Emirates (UAE) has long been recognized as a business-friendly destination, offering a tax system that is highly attractive to both local and international companies. One of the key advantages of operating in the UAE is the absence of corporate tax for most businesses, making it a highly competitive and cost-effective location for enterprises across various sectors. However, it’s essential to understand the UAE corporate tax law and the UAE CT law.

New Corporate Tax Rules

The UAE (United Arab Emirates) will launch a federal corporate tax on business profits from June 1, 2023. The UAE Federal Tax Authority will be accountable for the new corporate tax regime’s supervision, collection, and enforcement.

Here are the applicable corporate tax brackets under the new system:

• Zero percent for taxable income up to AED 375,000
• Nine percent for taxable income above AED 375,000
• A minimum effective uae corporate tax rate will apply under ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project ” to multinational corporations that have consolidated global revenues of more than EUR 750m.

Corporate Tax Exemptions

In the UAE, the majority of businesses, including the qualifying free zone person, are exempt from corporate tax on their qualifying income. This exemption applies to limited liability companies, branches of foreign companies, and other business entities incorporated in the UAE. 

The absence of corporate tax is a significant incentive for companies looking to establish operations in the country, as it allows them to maximize their profitability and reinvest their earnings into growth and expansion, including real estate investments.

While most businesses enjoy tax exemptions, there are certain exceptions where corporate tax is applicable. Companies engaged in the exploration and production of oil and gas are subject to a corporate tax rate of 55%. 

Additionally, branches of foreign banks operating in the UAE are required to pay a corporate tax of 20% on their taxable income. The taxable person must file the corporate tax returns, undergo corporate tax registration, and comply with the relevant ministerial decision and federal decree laws issued by the UAE ministry.

Tax Residency and Double Taxation Agreements

The concept of tax residency plays a crucial role in determining a company’s tax obligations in the UAE. Generally, a resident juridical person is considered a tax resident if it is incorporated or effectively managed and controlled within the country. 

The UAE has entered into double taxation agreements with several nations, which aim to prevent double taxation and promote economic cooperation between the contracting countries.

Tax Compliance and Filing Requirements

For taxable entities, compliance with tax filing requirements is essential. Companies subject to corporate tax must maintain accurate records, including financial statements prepared by approved auditors or chartered accountants, and file their corporate tax return within the specified tax period. 

Failure to comply with tax regulations can result in penalties and fines. It is advisable for businesses to seek professional advice from tax consultants, accounting service firms, or law firms to ensure they meet all applicable tax obligations.

Free Trade Zones and Tax Incentives

An Individual who have a free zone company inside the free zone area like Abu Dhabi in UAE can enjoy additional tax incentives and exemptions. Businesses in free trade zones are typically exempt from corporate tax, import and export duties, and certain other taxes, depending on the specific zone’s regulations. 

These incentives have attracted numerous multinational corporations and have contributed to the UAE’s economic diversification efforts.

Potential Future Changes

While the UAE currently maintains a corporate tax exemption for most businesses, there have been discussions about introducing a broader corporate tax regime in the future, as outlined in the cabinet decision. This potential change is driven by the UAE’s efforts to align its tax policies with international standards and meet the requirements of organizations such as the Organisation for Economic Co-operation and Development (OECD). 

However, any such changes would likely be implemented gradually and with careful consideration of their impact on the business environment and the overall economy, including provisions for small business relief.

Final Words

The UAE’s corporate tax landscape is a significant factor contributing to its attractiveness as a business destination. The exemption from corporate tax for most businesses, along with the availability of free trade zones and tax incentives, creates a favorable environment for companies to thrive and expand their operations.

However, it is essential for businesses, including the non resident person, to stay informed about potential changes in tax laws and regulations, seek professional guidance from a chartered accountant, or law firm to ensure compliance and maximize their tax advantages in accordance with the UAE CT law and the UAE corporate tax law.

Frequently asked questions

How does the new UAE corporate tax affect free zones?

Corporate tax incentives offered to free zone establishments that do not conduct business in mainland jurisdiction will remain in place. Please consult with your free zone to find out about the corporate tax incentive applicable to your specific jurisdiction.

Will an individual’s wage income be subject to the new corporate tax regime?

Corporate tax will not apply to an individual’s salary and other employment income. In addition, individuals will not be subject to corporate tax on dividends or capital gains from owning shares in a personal capacity. However, business income earned under a commercial business license will be within the scope of corporate tax.

Will anyone be exempt from the new corporate tax regime?

Businesses involved in extracting natural resources will continue to be subject to Emirate-level corporate taxation and beyond the remit of the new corporate tax regime.

Will the new corporate tax regime allow prior-year losses to reduce future taxable income?

The corporate tax regime will allow a company to use losses incurred to offset taxable revenue in subsequent financial periods. A tax loss would arise when the total deductions the company can claim are greater than the total income.

Will foreign corporate tax paid on UAE taxable income be recognized under the new corporate tax regime?

Foreign corporate tax paid on UAE taxable income will be allowed as a tax credit against UAE corporate tax liability.

Are there penalties for non-compliance under the new corporate tax regime?

Like other taxes and levies such as VAT, businesses will be subject to penalties for non-compliance with the new corporate tax regime. For details on fines and penalties, please consult the UAE Federal Tax Authority .

What actions should I take to ensure my business is ready?

We recommend you consult a Registered Tax Agent to understand the full impact of the new corporate tax regime and how to prepare your UAE business best.

If you are interested in starting a new business , please speak to one of our consultants to discover the free zone jurisdictions with the best corporate income tax incentives.

Use our Cost Calculator to get an estimate of how much business setup in Dubai cost.