UAE federal corporate tax in 2024

Healy Consultants Group Dubai office assists our multi-national Clients’ to timely accurately and completely discharge their annual legal, accounting, audit & tax obligations. This web page will help you understand your UAE statutory reporting obligations:

• Summary

  • UAE businesses will suffer Corporate Tax of 9%, from the beginning of their first financial year that starts on or after 1 June 2023; and
  • Fortunately, the first AED 375,000 of annual net profits are legally tax exempt. Only annual net profits above AED 375,000 suffer corporation tax of 9%;
  • Except for free zone entities, the Corporate Tax of 9% will apply to all mainland companies conducting business activities under a commercial licence in the UAE; and
  • UAE free zone entity annual net profits from sales to local customers will suffer corporation tax of 9%;
  • The UAE Federal Tax Authority requires all UAE entities (including Free Zone entities) to register for Corporate Tax and obtain a Corporate Tax Registration Number.
  • The Corporate Tax will apply to:
    1. Free zone businesses (the UAE Corporate Tax regime will continue to honour the Corporate Tax incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business set up in the UAE’s mainland);
    2. Foreign entities and individuals only if they conduct a trade or business in the UAE in an ongoing or regular manner;
    3. Banking operations;
    4. Businesses engaged in real estate management, construction, development, agency and brokerage activities;
  • According to UAE Ministry of Finance, the details of the Corporate Tax rates are as follow:
    • 0% for taxable income up to AED 375,000;
    • 9% for taxable income above AED 375,000; and
    • A different tax rate (not yet specified) for large multinationals that meet specific criteria set with reference to ‘Pillar two’ of the OECD Base Erosion and Profit Shifting Project;
  • Following the introduction of Value Added Tax (VAT) in 2018, the United Arab Emirates (UAE) introduced Corporate Tax in the country based on the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, released on 9 December 2022. According to UAE Federal Tax Authority, the introduction of Corporate Tax is intended to help the UAE achieve its strategic objectives and accelerate its development and transformation. The Corporate Tax is charged at a rate which is lower than most global tax rates. This maintains the country’s position as an attractive destination for Foreign Direct Investment (FDI); and

• Other considerations

  • All companies must submit a Corporate Tax Return within nine months from the end of their financial year. The first year of assessment will be applicable for the financial year starting on or after 1 June 2023; and
  • Taxpayers are responsible for preparing and maintaining financial statements and keep all documents and records that support the information provided in the Corporate Tax return, including transfer pricing policy and audit report (where applicable); and
  • UAE Federal Tax Authority (FTA) will be responsible for the administration, collection and enforcement of the Corporate Tax. FTA will soon provide more references and guides about corporate tax and information on how to register and file returns on its website;

• Exemptions and Small Business Relief

  • Registered tax resident businesses are liable for the tax, except if their taxable income falls below AED 375,000 or if the business is within an exempt industry, such as qualifying financial institutions or governance bodies, or if it is specifically exempted by the Ministry of Finance. Lists of exemptions can be found here;
  • Any UAE resident judicial companies with revenues below the threshold of AED 3 million can claim Small Business Relief;
  • To qualify for Small Business Relief, taxable individuals who are residents can claim it if their revenue is less than AED 3 million for each tax period. However, if their revenue exceeds the AED 3 million threshold in any tax period, they will no longer be eligible for the relief;
  • It is important to note that the AED 3 million revenue threshold will only apply to tax periods beginning on or after June 1, 2023, and will continue to apply only to subsequent tax periods that end on or before December 31, 2026;

• Other important considerations

  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

  • Income that are subject to tax are accounted for after considering qualifying interest, proportions of client entertainment costs and business expenses;
  • Provisional tax returns are not due however final tax returns are due for branches of foreign banks along with the payment of the tax liabilities on or before the last day of the third month following the financial year end;
  • Provisional tax returns are not due however final tax returns are due for other taxable businesses along with the payment of the tax liabilities on or before the last day of the ninth month from the end of the relevant tax period;
  • To ensure compliance, it is important to keep records and documents for a minimum of seven years after the end of the relevant tax period;
  • Group companies can submit one Corporate Tax Return per financial period;

• Conclusion

  • At Healy Consultants Group, Nik Zhukov, who heads the Accountancy, Taxation & Compliance departments along with his team of internationally experienced tax specialists, is more than willing to assist you with all your tax affairs – both locally in the UAE and globally.

• Frequently Asked Questions

  • I thought that the UAE and Gulf Co-operation Council (GCC) countries do not have taxes?
    • Corporate tax is nascent in the region and is being implemented along with other GCC countries to form part of a corporate tax platform that covers the region.
    • The newly introduced corporate tax will come into effect on 1 June 2023.
    • This follows the introduction of VAT five years ago in 2018.
  • What business entities and earnings fall within the tax ambit?
    • With select exceptions, all companies in the UAE are liable for corporate taxes.
  • Which entities are not taxable?
    • Government entities, entities approved by the Ministry of Finance, qualifying resources industries and investment funds.
  • At what rate would I expect to pay tax on my taxable income?
    • The tax rate is 9%, which is among the lowest in the world, and only a few countries have lower tax rates.
  • My business receives savings income such as dividends, interest, and royalties. Would it pay taxes on this even if they are earned from foreign countries?
    • The company would pay taxes on taxable incomes which exceed AED 375,000 at 9%, which includes dividends, royalties, and interest receipts.
    • The company taxes are on all taxable earnings within the UAE and abroad, however, it depends on whether the company is tax resident or non-tax resident.
    • As the withholding tax rates are at 0%, it will not affect the amounts received in the bank.
  • Exactly which income will be taxable?
    • Companies can still enjoy a 0% tax band if their taxable incomes are below AED 375,000 for each tax year.
    • Any taxable income (details above) exceeding AED 375,000 will bear corporate taxes at 9%.
  • What expenses qualify to be deducted to arrive at my taxable income?
    • To assess the income that is taxable, 50% of client entertainment costs are added, while the remaining 50% is tax-deductible.
    • Interest costs are allowable up to 30% of the taxable income before interest, depreciation, and amortization.
    • Expenses must be related to the business activity.
  • Is UAE still an attractive destination for investment now that they have corporate taxes?
    • UAE is still an attractive destination for Foreign Direct Investment (FDI) with its state-of-the-art technology, excellent infrastructure, governance, security systems and one of the best-performing economies regionally.