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Are You All Set for UAE Corporate Tax in 2023?

Not all nations impose a 9% corporation tax! Your company is fortunate to have its headquarters in one of the few tax haven nations in the world. Whether paid by businesses or people, a sizeable sum of money is typically paid to the government in the form of taxes (there are many!). A startling 60% personal income tax and an astounding 37.5% corporation tax are levied in some countries, in addition to a number of additional taxes like sales tax, income tax, property tax, inheritance and estate tax, excise tax, and more.

The UAE awoke to a plethora of surprises in 2022, some good and others not. Leave pleasant ones behind. Let’s discuss the issue that is bothering you, which is the implementation of corporate taxes at the federal level throughout the UAE. The corporation tax will be applicable to revenue received by legal entities, including people who are involved in business, commercial, professional, or any other economic activity that needs a business license or authorization, subject to specific exemptions and limitations.

The UAE woke up to a world full of shocks in 2022—some good, some bad. Leave pleasant ones behind. Let’s discuss the issue that is bothering you, which is the implementation of corporate taxes at the federal level throughout the UAE. The corporation tax will be applicable to revenue received by legal entities, including people who are involved in business, commercial, professional, or any other economic activity that needs a business license or authorization, subject to specific exemptions and limitations.

Find the bright side of any situation

One bad and one positive news! First, bad: You can’t avoid paying taxes. They are a given, just like death! The good news is that with careful tax preparation, tax deductions are available. Simply locate an experienced company tax advisor in Dubai and presto! They will not only assist you in getting ready for the UAE corporation tax in 2023, but they will also ensure that the start of the following fiscal year goes well.

Flashback

The UAE government announced on the last day of the first month of 2022 that starting on June 1, 2023, all enterprises and entities registered in the UAE will be required to pay federal-level corporation tax at a rate of 9% (subject to exemptions). The eligibility criteria have been established, elevating small- and medium-sized UAE businesses. The law and rules pertaining to this have yet to be issued in full. Meanwhile, you should be aware that the following situations will result in you having to pay corporate income tax:

  • A company that generates a taxable income of more than AED 375,000 (US$ 102,000), provided you do not fall under the authority of a free zone and do not benefit from tax holidays.
  • An individual who engages in activities that need a business license and generates a net income of more than AED 375,000

UAE Corporate Tax & Other Expenses

The federal corporate tax is only levied on profits; it is unrelated to any of the charges a business may incur, including those for licenses, permits, visas, health insurance, and other operating expenses. Businesses in the UAE will be required to pay corporate tax at rates ranging from 0 to 9% of their net taxable revenue. The UAE government’s action is a clear indication that the time when the majority of enterprises in the country did not have to pay taxes on their income is coming to an end. But the greatest thing is that the UAE will still be a sanctuary for tax exiles and continue to entice investors from around the world because the country’s 9% corporate tax rate is still remarkably low in comparison to other countries rates.

Understand corporate tax

The net income or profit of companies and other enterprises is subject to a type of direct tax known as corporate tax, corporate income tax, or business profits tax. Most nations in the globe, including the majority of the GCC Member States, already have an extensive CIT regime. The UAE also plans to implement CIT starting in 2023 to align itself with international tax norms while maintaining the Corporate Tax rate’s competitiveness on a worldwide scale. The UAE is committed to upholding international standards for tax transparency and eliminating damaging tax practices. The choice will undoubtedly strengthen the UAE’s position as a top international hub for trade and investment and speed up its growth and transformation to meet its strategic goals.

Recognize the UAE’s Federal Corporate Tax

The majority of businesses in the UAE, whether they are located in a free zone or on the mainland, are exempt from corporation taxes. Corporations operating in a free zone may do so with a 50-year corporate tax moratorium that is renewable. All UAE-registered firms in the UAE will nevertheless be required to pay corporate income taxes starting on 1 June 2023, subject to exemptions. Starting on June 1, 2023, all in-scope companies with net income or taxable income of AED 375,000 or more are required to pay corporation taxes. Depending on the ability of the companies to generate profits, the corporation tax rate in the UAE can range from 0% to 15%. This indicates that for small firms with taxable income under AED 375,000, the Corporate Tax rate will be 0%. People in the UAE who are paid a salary will continue to be exempt, but those who earn more than AED 375 000 from freelance work or other home-based businesses that are required by law to have a license or permit are not.

Calculations of Corporate Taxes

Accounting net income is the basis for calculating corporate taxes. One must take into account all of the revenue from all of the revenue streams in order to calculate net income, also known as net profit or net earnings. They must also calculate the costs associated with generating such incomes, such as operating costs, loan interest, depreciation, and amortization costs, among others.

You must multiply your net or taxable income by 9% in order to determine your business tax obligation. Additionally, you must subtract the total of all business expenses from the total income in order to determine your company’s taxable income. Be aware that the accounting net income will follow generally accepted accounting rules (subject to a few adjustments).

UAE Corporate Tax 2023 Scheme Exemptions

The corporate tax rate of 9% is not mandatory for all UAE entities. The tax rate can range between 0% and 15%, with the exception of businesses involved in the extraction of natural resources. Till the specific guidelines and rules pertaining to the UAE corporation tax code are released, treat the statement with a grain of salt. Every law or rule also includes an exemption. Perhaps to equalize the economic contributions from each business or to lessen the strain placed on a certain group of entities to support them. The new corporate tax law in the UAE also relieves some entities, including people, by exempting them from paying any tax at all and increasing the rate for businesses that may generate significant profits. The UAE will impose a 9% corporate income tax on both people and corporations starting on or after 1 June 2023. The exclusions are shown below:

For those earning money in the UAE
  • employment-related income
  • earnings from contract work, businesses, professions, or other economic activities that are only legal with a business license or permit
  • Income from real estate investments, provided they are made personally and not as a business requiring a business license.
  • income from any commercial or business activity for which a license or other legal authorization is not required under UAE legislation
  • Earnings from personal investments in shares and securities, as well as capital gains and dividends
  • earnings from savings and deposit accounts, including interest
For companies based in the UAE
  • Large multinational corporations that satisfy certain criteria might be required to pay a slightly higher corporate tax rate that has not yet been announced.
  • Corporate tax is zero percent for small and medium-sized businesses with recorded income of no more than AED 375,000.
  • Companies registered in the free zone that abide by all rules and refrain from doing business with mainland UAE firms would still receive benefits from the free zone, such as exemption from income and corporation taxes.

Free Zone Businesses & Corporate Tax in the UAE

It is yet unknown how much the new corporation tax plan will impact businesses located in free zones. Early reports indicate that the new corporate tax regime will maintain the benefits offered by free zones, recognizing the value of these areas to the UAE economy. In addition to other benefits like 100 percent foreign ownership, 100 percent repatriation of capital & profits, and exemptions from import & export taxes, free zone companies that are operating in accordance with all regulations and do not conduct business with mainland UAE companies will still have an advantage over non-free zone companies in terms of corporate tax.

Corporate Tax in the UAE and Offshore Companies

Ras Al Khaimah (RAK) and the Jebel Ali Free Zone (JAFZA) are the two main jurisdictions that offer offshore companies in the UAE, and both are “tax-free” jurisdictions that levy no income tax or corporate tax and permit 100% foreign ownership. The UAE has double tax treaty agreements with more than 40 other countries. The MoF FAQs still don’t address the query “Will UAE offshore corporations be liable to corporate tax from 2023 onwards?” However, the majority of business consultants and organizations in the UAE suspect they would be handled similarly to other free zone businesses. Financial statements that have been audited are often required for offshore enterprises. Depending on the specifics of the offshore system, the audit need could change.

Prepare your corporate taxes with Intellect Chartered Accountants, a Dubai tax expert.

Dubai and other regions of the UAE are home to some highly creative businesspeople! It won’t be long till the upcoming fiscal year! The month of June 2023 would arrive in an instant! And right now is the ideal time to prepare your corporation taxes! To reach “day-one UAE Corporate Tax compliance,” which is the goal for any firm, there is a lot of work to be done. Instead of going in circles, hand the task off to an expert in corporation taxation and relax. We have a responsibility to get you and your company tax-ready before June 1, 2023, to help the transition go smoothly. Contact us now to know how Intellect Chartered Accountants, one of the top business consulting firms in Dubai, can assist you with adhering to the recently passed corporate tax law. Whether you own a daycare center, a barbershop or beauty salon, a real estate agency, an online store, a grocery store, or a company that provides digital marketing services. Your initial consultation with one of our business tax experts in Dubai is on us!

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