UAE company compliance, legal and accounting and tax considerations in 2024

corporate tax from 1 June 2023

0%

income tax for residents

capital gains tax

0%

withholding taxes

VAT

signed DTAs

UAE taxation

  • The UAE tax system exempts individuals from personal income tax. There are additionally no withholding taxes in the UAE
  • There is a 9% Corporate Income Tax which will apply to businesses across all Emirates
  • In the UAE, a standard Value Added Tax (VAT) rate of 5% applies, with exemptions for certain categories including food items, health, education, petroleum products, social services, and bicycles. VAT exemptions also extend to the financial services and (residential) real estate sectors, with some exceptions. Businesses in the UAE must register for VAT if their taxable supplies exceed AED375,000. However, voluntary registration is available for those exceeding AED187,500. Our team can help our Clients with VAT registration and filing of periodic VAT returns
  • A mandatory 5% tax on imports to mainland UAE is applicable to all trading companies, irrespective of their business activities; However, companies in free zones are exempted from import duty on goods coming into and staying within the free zone
  • Real property transfer tax is 4%, borne equally by the buyer and the seller. Excise tax is applicable to the import, production, and stockpiling of excise goods such as carbonated beverages, energy drinks, and tobacco products
  • Tax rates for oil, gas exploration and production companies as well as petrochemical companies vary depending on the terms of specific government concession agreements. Branches of foreign banks are taxed generally at a flat rate of 20%
  • In most Emirates, a municipality tax is levied on properties based on their annual rental value and is generally paid by tenants. In some cases, additional fees are required from tenants and property owners. For example, in Dubai, commercial properties are subject to a municipality tax of 5%, paid by property owners. Residential properties, on the other hand, incur a 5% payable by tenants
  • For UAE nationals, social security contributions are determined at 20% of the employee’s gross salary as specified in the local employment contract. The breakdown of this contribution is as follows: 5% from the employee, 12.5% from the employer, and 2.5% from the government
  • In 2020, the UAE implemented the eDirham system to facilitate the collection of state fees and revenues and provide further options for paying government fees using the latest technology

Tax reporting, accounting, and auditing considerations

  • UAE companies are required to register for Corporate Income tax within three months from company/branch incorporation and submit an annual declaration or return annually. UAE offshore companies and others exempted from corporate tax are also required to register for Corporate Income Tax
  • In accordance with the UAE VAT law, a UAE company is required to impose 5% VAT on all invoices issued to UAE based Clients that are VAT registered or multi-national Clients’ requiring services in the UAE. Sales invoices are zero VAT rated for multi-national Clients’ requiring business set up outside of UAE
  • VAT returns generally are filed on monthly or quarterly basis depending on the business turnover. However, they must be filed online by the 28th day of the month following end of the reporting quarter
  • All companies must submit and file annual financial statements prepared on the basis of IFRS/IAS with the Authorities annually. Depending on the location of the entity, our Client may also need to conduct an annual audit

UAE VAT and CIT

VAT registration

VAT registration is mandatory when the amount of taxable supplies and imports of a business go above the threshold of AED375,000. They can also choose to voluntarily register for VAT if the sum of their taxable supplies, imports, or expenses surpasses AED187,500.

CIT Registration

All taxable entities are obligated to register for UAE Corporate Tax within three months of company/branch registration and the corresponding implementing decisions. The requirement for UAE Corporate Tax registration encompasses all businesses, regardless of whether they are subject to a 0% or 9% tax rate.

VAT filing

With a general VAT rate of 5%, businesses in the UAE must file their VAT returns with the Federal Tax Authority within 28 days at the end of their respective tax period. This period varies by business type and represents the specific timeframe for tax calculation and payment. Businesses with an annual turnover below AED150 million are required to file quarterly while those with a turnover of AED150 million or more file monthly.

CIT filings

Under the UAE Corporate Tax Law, all taxable persons must file and, where necessary, pay corporate tax returns within nine months after the close of the applicable tax period. This requirement applies regardless of whether the entities are taxed at a 0% or 9% rate.

Financial Statements

Companies must submit their financial statements within 90 days after the end of each financial year. The duration of the first financial year post-incorporation must be between six and 18 months. Nevertheless, companies may request to extend the deadline for the submission of these reports. Depending on the location of the company, an audit may be required.

    Penalty for non submission

    Penalty type Penalty amount
    Failure to keep the required records and other information specified in the tax laws AED 10,000 for each violation, or AED 20,000 in each case of a repeated violation
    Failure to submit data, records and documents related to Tax in Arabic to the Federal Tax Authority (FTA) AED 5,000 for each violation
    Failure to file a Tax Return within the specified timeframes AED 500 for each month (or part thereof) for the first 12 months, and AED 1,000 for each month (or part thereof) from the 13th month onwards.
    Failure to settle the Payable Tax Monthly penalty of 14% per year
    Submitting an incorrect Tax Return AED 500 unless the Tax Return is corrected before the deadline for submission

    UAE company tax exemption package

    • The UAE has Double Taxation Avoidance Agreements (DTAA) with more than 90 countries including Canada, China, France, India and Singapore
    • All supplies of goods and services made in the UAE are taxable supplies. However, the UAE’s Cabinet lists over 20 free zones across the country as designated free zones under special treatment under VAT law. For an area located within one of the Designated Zones to qualify as being outside the UAE (for VAT purposes), it must also meet the criteria of Article 51 of the Executive Regulations:
      • It is a specific fenced geographic area
      • It has security measures and Customs controls in place to monitor the entry and exit of individuals and movement of goods to and from the area
      • It has internal procedures regarding the method of keeping, storing, and processing of goods within the area
      • The operator of the Designated Zone must comply with the procedures set out by the FTA
    • It is only when the area within the Designated Zone meets all the requirements of Article 51 of the Executive Regulations should it be treated as outside the UAE territory for VAT purposes, applicable to specific supplies of goods only. Otherwise, businesses established within a designated zone have the same VAT compliance obligations and rights as non-Designated Zone businesses

    UAE company legal and compliance considerations

    • The legal framework of the Emirates is a dual acting system which comprises of mainly Islamic shariah and conventional law
    • Foreign companies are permitted to establish a branch or incorporate a wholly-owned subsidiary in both mainland and free trade zones without the need to appoint a UAE national sponsor or have any UAE national ownership
    • A UAE LLC is required to renew its business licence and registration with the local authorities annually
    • It is not permitted to have two different classified business activities under one licence e.g. trading and services
    • As part of the UAE incorporation process, our Clients are required to appoint a manager, who can be designated either through the Memorandum of Association (MOA) or via a separate management contract. Unless specified differently in the MOA, the manager will have full administrative authority and his decisions will be binding to the company
    • Under UAE corporate law, directors control the daily operations of the UAE business. Directors are appointed by the company’s shareholders who have the power to remove them as and when required. Each business activity requires different government approvals, permits and licences to run the business apart from just registering the company. Certain products and services such as food, medicine, medical equipment, and cosmetics must be registered with the government
    • A company must rent an office premises in the same Emirate and in the same free zone of incorporation. Renting an addition office in another free zone or Emirate is possible but can be challenging
    • All UAE companies must submit a declaration of Ultimate Beneficial Owners (UBOs), shareholders and nominee directors. Refer to UAE UBO page for detailed information
    • All companies engaged in relevant activities must adhere to the Economic Substance Requirements by filing an ESR notification within six months of the financial year-end and submit an ESR report within 12 months of the financial year-end. Refer to UAE economic substance page for detailed information. Failure to submit the ESR notification on time could lead to penalties amounting to AED20,000
    • The government oversees the company deregistration process, which typically spans a minimum of six months. During this period, maintaining a resident company secretary and a legal registered office is mandatory
    • UAE is a full member of i) the World Intellectual Property Organisation (WIPO) ii) the World Trade Organisation (WTO) iii) the Paris Convention iv) the Patent Cooperation Treaty (PCT) v) the WIPO Copyright Treaty vi) the WIPO Performances and Phonograms Treaty and vii) the Rome Convention
    • All businesses with employees in the UAE must register for the Wages Protection System. This registration takes approximately four weeks
    • Expatriates employed by a UAE employer are entitled to the ‘end of service’ benefit
    • All employees in the UAE are required to obtain a job loss insurance. This insurance provides financial assistance to employees who lose their jobs due to termination by their employers (except for gross negligence). The annual insurance cost varies between AED60 to AED120, depending on the employee’s basic salary
    • The UAE has recently approved to boost the Emiratisation rate within the private sector. Specifically, mainland-registered private sector employers with a workforce of over 49 skilled employees are required to recruit UAE nationals. Additionally, they must increase the number of Emirati employees by at least 2% each year through 2026. Refer to the table below for more information. Non-compliant companies will be subject to fines of AED6,000 per month. Other sanctions will additionally apply
    Number of skilled workers Number of UAE nationals be hired each year
    0-49 exempted
    50 One UAE national
    51-100 Two UAE nationals
    101-150 Three UAE nationals
    151 and above One UAE nationals for every 50 skilled workers

Contact us

For additional information on our accounting and legal services in UAE, please contact our in-house country expert, Ms. Chrissi Zamora, directly:
client relationship officer - Chrissi