The United Arab Emirates (UAE) has long been a global hub for businesses, thanks to its tax-friendly policies and strategic location. With a 0% corporate tax policy historically in place, the country attracted thousands of multinational corporations and entrepreneurs. However, recent regulatory changes have reshaped the corporate tax landscape. The new 9% corporate tax, introduced in June 2023, applies to businesses exceeding AED 375,000 in annual profits, signaling a shift toward global tax compliance standards.
To ensure businesses adapt smoothly to these changes, Now Expert Tax Consultants provides comprehensive tax advisory services to help companies remain compliant while optimizing tax strategies.
Introduction of Corporate Tax in the UAE:
In January 2022, the UAE Ministry of Finance announced the implementation of a federal Corporate Tax (CT) on net business profits. This tax became applicable from June 1, 2023, or January 1, 2024, depending on the financial year of the business. The primary objectives are to solidify the UAE’s position as a global business hub, accelerate development, and align with international tax standards.
Corporate Tax Rates and Structure
The UAE’s corporate tax framework is structured as follows:
- 0% on taxable income up to AED 375,000.
- 9% on taxable income exceeding AED 375,000.
Additionally, a different tax rate applies to large multinationals meeting specific criteria related to the OECD Base Erosion and Profit Shifting Project.
Scope and Exemptions:
Corporate tax in the UAE applies to all businesses and individuals conducting commercial activities under a UAE trade license. This includes banking, retail, real estate development, and professional services. However, there are key exemptions to keep economic balance:
- Natural Resource Extraction: Businesses engaged in oil, gas, and mining activities remain exempt as they are taxed at the Emirate level instead.
- Dividends & Capital Gains: Income from qualifying shareholdings is not taxed to prevent double taxation.
- Intra-Group Transactions & Reorganizations: Transfers within a corporate group, mergers, and restructuring are exempt, provided they meet set conditions.
- Individuals & Investments: Salaries, bank interest, and personal real estate investments are not subject to corporate tax, as they do not qualify as business income.
These exemptions help maintain the UAE’s appeal as a business-friendly destination.
Compliance and Filing Requirements:
To ensure smooth implementation of corporate tax regulations, all taxable entities in the UAE must register with the Federal Tax Authority (FTA) and obtain a Tax Registration Number (TRN). This is a mandatory step for businesses operating in the country, regardless of their taxable income. Once registered, companies are required to file tax returns annually, with the deadline set at nine months after the end of their financial year.
For instance, if a company’s financial year ends on December 31, 2024, it must file its tax return no later than September 30, 2025. The tax return must provide a complete breakdown of taxable profits, deductions, and any applicable exemptions. Businesses failing to comply with the registration or filing process may face hefty penalties, starting at AED 10,000. Repeated violations or tax evasion attempts could result in higher financial penalties and legal consequences.
To streamline tax compliance, businesses should maintain accurate financial records, ensure timely tax payments, and seek professional tax advisory services to navigate complex tax regulations efficiently.
Recent Developments:
As part of its ongoing efforts to align with global tax standards, the UAE is introducing a 15% minimum top-up tax under the OECD’s Global Anti-Base Erosion (GloBE) rules. This new regulation, set to take effect in January 2025, will specifically apply to large multinational corporations that generate global revenues of at least €750 million.
The purpose of this tax is to prevent profit shifting and base erosion, ensuring that multinational companies pay a fair share of taxes regardless of where they operate. Previously, many global businesses leveraged the UAE’s low-tax environment to minimize their overall tax burden. However, with the introduction of the OECD’s global minimum tax framework, large corporations must now adhere to the 15% minimum effective tax rate in the UAE.
While this change impacts multinational enterprises, small and medium-sized businesses (SMEs), startups, and local companies remain subject only to the standard 9% corporate tax (or 0% for income below AED 375,000). Businesses affected by the new tax regime should begin preparing their financial structures accordingly to ensure compliance with the upcoming regulations.
Conclusion:
The UAE’s introduction of corporate tax marks a significant shift in its fiscal policy. Businesses must understand these changes to ensure compliance and optimize tax planning. For personalized advice and support, Now Expert Tax Consultants provides comprehensive services tailored to your needs.
