On January 31, 2022, the UAE government announced the introduction of a new corporate tax. Historically, the UAE has not levied taxes on corporate profits, except for a few industries, such as extractive industries and foreign banks. However, from the financial year starting June 1, 2023, more companies operating in the region will have to pay a new 9% Corporate Tax UAE rate.
The new UAE Corporate Tax will not affect all businesses, and many businesses will not have to pay any tax at all. Find out more about the new UAE corporate tax and what it means for you.
The UAE Corporate Tax History
For many years, the United Arab Emirates operated as a very low tax jurisdiction. Citizens do not pay tax on their income, and most companies have never had to pay any form of corporate tax. Most of the state’s revenues came from nationalized and private fossil fuel extraction industries that paid around a 50% tax on revenues. Meanwhile, foreign banks have long paid a 20% Corporate Tax UAE on operating profits, and hotels and restaurants in Dubai have paid certain taxes, too.
However, in recent years, the United Arab Emirates has begun trying to diversify its economy away from fossil fuels. This means that more and more companies are now paying no taxes at all. With potential revenues from fossil fuels decreasing and economies rapidly growing, it makes sense for governments to tax corporate income to enable further investment in infrastructure, education and healthcare.
The United Arab Emirates introduced her VAT for the first time in 2018, imposing a 5% tax on all consumer purchases. Then, in January 2022, the government announced a 9% Corporate Tax UAE that would go into effect from the following year.
Another reason is that the UAE has introduced a new UAE corporate tax to align the country with international standards and combat tax avoidance. Most other developed countries around the world tax corporate profits, but the UAE’s 9% tax on companies is significantly higher than the norm in most other developed countries, which is typically around 20%. It is low. The new UAE corporate tax will also help deter foreign companies from using the country as a base to avoid taxes in their home country.
UAE Corporate Tax In 2023 – What Is It?
UAE Corporate Tax in 2023 is levied on the profits (revenue less expenses) of all companies generating more than Dh375,000 (approximately $100,000). It becomes 9%. Businesses below this amount will continue to pay a 0% tax rate.
In addition to corporate tax, the UAE has announced that large multinational companies with profits of more than 750 million euros will have to pay a 15% tax. This is in line with the agreement on the world’s lowest corporate tax UAE rate.
The new UAE corporate tax will come into effect for the tax year starting June 1, 2023, so most businesses will need to set aside funds to pay the tax from this date. Companies whose tax year begins in January do not have to pay tax on income generated before January 1, 2024.
Characteristics Of The Corporate Tax System
UAE corporate tax system includes a variety of policies, ranging from tax-free zones to corporate tax, value-added tax regimes, and federal income tax exemptions. Read below for more information on taxation.
Who May Be Taxed?
Corporations with well-known legal entities such as LLC, PSC, PJSC, and LLP are subject to tax liability. Additionally, foreign corporations that earn income and are tax resident in the UAE are also subject to tax. In return for complying with all legal requirements, free zones are subject to 0% corporate tax, which also applies to free zone companies that conduct commercial activities with the mainland. Non-residents and residents of the UAE may also be subject to corporate tax UAE policies.
If a business earns income that doesn’t exceed AED 375,000, 0% tax will be charged, and 9% will be charged if income earned exceeds AED 375,000. Also, a different tax rate will be charged for larger multinational companies that have different business conditions.
Who Is Exempted?
Upon receiving dividends or selling shares of a subsidiary company, the corporate tax UAE law will include a participation exemption from corporate tax. Also, charities, public benefit organizations, investment funds, businesses engaged in the extraction of oil and resources, and wholly government-owned companies are excluded from corporation taxes.
Calculating Taxable Income
Generally, the net profit or loss reported in a company’s financial statements is used to determine tax rates and income. In case of business losses, the company can offset up to 75% of the value against taxable income in future financial years.
A group of companies may form a tax group that is treated as a single taxable entity. To do this, a company or subsidiary does not need to be an exempt person or registered in a free zone.
To avoid double taxation, this regime allows a credit on non-exempt foreign tax income alongside the foreign tax paid in the foreign jurisdiction.
UAE – Corporate Tax – 2023
Will Free Zone Companies Be Taxed?
It is still not entirely clear how the UAE’s new corporate tax will apply to companies based in free zones. Companies in free trade zones will continue to benefit from the pre-agreed incentives of their free trade zones, the government said in a statement. However, free trade areas may decide to change their rules and introduce taxes in the future.
When a free zone company trades with a mainland company, it usually has to pay corporate tax on the income it receives from the trade.
Free zone companies must register and file corporate tax returns even if they do not actually have to pay any taxes.
Is Personal Income Taxed In Dubai?
No, there are currently no plans to tax the personal income of people in Dubai or the rest of the UAE.
In Dubai, everyone must pay a 5% value-added tax on consumer goods and services as the only form of income tax.
Is There A Capital Gains Tax On Dividends In Dubai?
No, there are currently no plans to introduce capital gains tax on dividends received in the UAE or Dubai. As of this writing (March 2022), entrepreneurs and investors do not pay capital gains tax on dividends from portfolio companies.
Why should you start your business in the FM Free Trade Zone?
Located in the heart of Dubai,
FM Free Zone is the perfect place to start your business in the Emirate of Dubai. Companies based in free zones will continue to benefit from existing incentives negotiated with the government, such as a 0% tax rate on profits. Even if the UAE’s new corporate tax rate comes into effect from June 2023, you won’t have to pay it (unless you do business with mainland companies). We have no plans to change this, and we will continue to offer a 0% corporate tax rate to all business customers for the foreseeable future (or until new regulations introduce changes).
In addition to the 0% tax rate commitment, there are many other benefits when choosing FM Free Zone. Our free zones are located close to the central business district, airports, roads and leisure facilities. We offer 24/7 access, high-quality internet connectivity, and all the technical support your business needs to succeed. Our experienced advisors will help you with all aspects of setting up your business in Dubai so you can focus on building your business and leave the management to us. We can also advise on matters such as filling out corporate tax returns (free zone companies will still need to file and register a return from June 2023 onwards, even if they do not have to pay tax themselves).
We also offer a variety of additional services to entrepreneurs looking to start a business in Dubai. For example, FM Pay offers a digital wallet and IBAN that customers can use to receive payments from anywhere in the world.
Similarly, FM Commerce is a unique product that helps you sell your products through e-commerce websites like Noon and Amazon. This is very helpful if you want to run an e-commerce business in Dubai, United Arab Emirates. To make setting up a business more affordable, our easy payment plan allows you to spread the cost of setting up a business in the Dubai Free Zone over several months.
Join thousands of other entrepreneurs who have launched successful businesses in the UAE and benefit from his 0% corporate tax rate, which we continue to offer. Contact FM Free Trade Zone today!
FAQ 1: Is The UAE Tax-Free For Companies?
Although companies established in mainland UAE are subject to certain taxes, Dubai’s free zones, such as the FM Free Trade Zone, allow corporate profits to be levied at 0% corporate and personal tax.
FAQ 2: Who Pays Corporate Tax In The UAE?
All companies and other companies with commercial activities are subject to the payment of corporate tax, although exceptions apply to some business models.
A company that used to engage in oil production.
FAQ 3: Why Is Corporate Tax Introduced In The UAE?
A detailed and comprehensive corporate regime is in place to strengthen Dubai’s global position as a hub for investment and innovative start-ups. The UAE has introduced affordable registration fees that do not include corporate tax.
FAQ 4: How Much Is Corporate Tax In The UAE?
Dubai has a progressive corporate tax system with tax rates ranging from 9% to 55%.