Tax Laws in UAE: A Guide for Individuals and Businesses
On January 31, 2022, the UAE government announced the introduction of a new UAE corporate tax law. Historically, the UAE has not levied taxes on corporate profits except in a few industries, such as mining and foreign banking. However, from the fiscal year beginning June 1, 2023, more businesses operating in the region will have to pay a new 9% UAE corporate tax law rate.
The UAE’s new corporate tax law will not affect all businesses, and many will not have to pay any tax at all. Find out more about the new UAE corporate tax law and what it means for you. UAE corporate tax law history.
For many years, the United Arab Emirates has been a country with very low taxes. Citizens pay no tax on their income, and most businesses do not have to pay any form of corporate income tax. Most of the state’s revenue came from the nationalized private fossil fuel industry, which paid about 50% sales tax. Meanwhile, foreign banks have long paid a 20% corporate tax on operating profits, and Dubai hotels and restaurants also pay a certain amount.
However, in recent years, the UAE has started to diversify its economy away from fossil fuels. This means that more and more businesses are now paying no taxes at all. With less potential fossil fuel income and a booming economy, it makes sense for governments to corporate tax law UAE profits to enable more investment in infrastructure, education, and health care.
The United Arab Emirates introduced her VAT for the first time in 2018, applying her 5% corporate tax law in UAE on all consumer purchases. And in January 2022, the government announced a corporate tax law UAE rate of 9%, which will come into effect the following year.
Another reason is that the United Arab Emirates has introduced a new corporate tax law UAE to bring the country in line with international norms and to combat tax avoidance. Most other developed countries around the world impose taxes on corporate profits, but the UAE’s 9% corporate tax law is still significantly lower than most other developed countries standards (usually around 20%). The UAE’s new corporate tax law will also help deter foreign companies from using the country as a base for tax evasion at home.
UAE Corporate Tax Law In 2023 – What is it?
In 2023, the UAE corporate tax law will be 9% on profits (income minus expenses) for all companies generating more than AED 375,000 (approximately USD 100,000). Businesses earning less than this amount will continue to pay the 0% tax rate. In addition to the corporate tax law UAE , the UAE has announced that large multinationals with profits over €750 million will have to pay a 15% tax. This is in line with the agreement on the lowest corporate tax rate in the world.
The UAE’s new corporate tax law will take effect in the tax year beginning June 1, 2023, so most businesses will need to start saving money to pay the tax from that date. A company whose tax year begins in January does not have to pay tax on sales made before January 1, 2024.
Characteristics Of The Corporate Tax System
Dubai’s corporate tax regime includes a range of policies ranging from duty-free zones to corporate tax, VAT system, and lack of federal income tax.
Who May Be Taxed?
Corporations with prominent legal personalities, such as LLC, PSC, PJSC, and LLP, are subject to tax liability. In addition, foreign companies that generate income and reside in the UAE are also taxed. Free zones charge 0% corporate tax in exchange for complying with all legal requirements, but the same applies to free zone companies conducting commercial activities with the mainland. Non-residents and residents of the UAE may also be subject to the corporate tax policy.
A 0% tax is levied if the company’s income does not exceed AED375,000 and a 9% tax if its income exceeds AED375,000. Also, different tax rates are imposed on large multinational companies with different business conditions.
Who Is Exempt?
If you receive dividends or sell shares in a subsidiary. The Corporate Tax Law provides for corporate tax exemption on your investment. Charities, non-profit organizations, mutual funds, companies engaged in oil and raw material extraction, and wholly state-owned enterprises are also exempt from corporate tax law UAE.
Calculation Of Taxable Income
Generally, the net profit or loss reported in a company’s financial statements is used to determine tax rates and income. In the event of a loss, the company can offset its value against future taxable income by up to 75%.
A corporate group may form a tax group that is treated as a single taxable entity. A company or subsidiary need not be an Excluded Party or be registered in a Free Zone.
To avoid double taxation, the regulation would allow non-exempt foreign tax income to be deducted. In parallel with foreign tax paid in the foreign jurisdiction. UAE Corporate Tax – 2023
Are Free Zone Companies Taxed?
It is not yet entirely clear. How the new UAE corporate tax Law UAE will apply to companies based in free zones. Free trade zone businesses will continue to benefit from pre-agreed incentives. In their own free trade zones, the government said in a statement. However, free trade zones may decide to change the rules and introduce taxes in the future.
When a company in a free trade zone does business with a company on the mainland. It usually has to pay corporate tax on the income it receives from doing business with that company. Free zone businesses are also required to register. And file UAE corporate tax law returns, even if they are not actually required to pay taxes.
Is Personal Income Taxed In Dubai?
No, there are currently no plans to tax the personal income of people in Dubai or elsewhere in the UAE. The only income tax in Dubai is his 5% VAT, which everyone has to pay on consumer goods and services.
Are Dividends Subject To Capital Gains Tax In Dubai?
No, there are currently no plans to introduce a capital gains tax on dividends received in the UAE or Dubai. At the time of this writing (March 2022), entrepreneurs and investors do not pay capital gains tax on dividends from investee companies.
Why Should I Start My Business In Free Zone?
The Free Zone in the heart of Dubai is the perfect place to start your business in the Emirate of Dubai. Companies based in free zones can continue to benefit from existing incentives negotiated with the government, such as a 0% tax 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).
They have no plans to change this and will continue to offer his 0% UAE corporate tax law rate to all corporate customers. For the foreseeable future (or until new regulations are introduced to change this). In addition to our 0% tax rate commitment, choosing a -free zone offers many other benefits.
Free zones are located near central business districts, airports, roads, and recreational areas. We offer 24/7 access, high-quality internet connectivity, and all the technical support you need to run a successful business. Experienced consultants can help you with all aspects of setting up your business in Dubai.
So you can focus on building your business and let them manage it. They can also advise you on matters such as completing corporate tax returns (free zone companies must still file and register after June 2023, even if they do not have to pay taxes themselves).
In addition, they offer a range of additional services for entrepreneurs looking to set up a business in Dubai. For example, they offers a digital wallet. And IBAN that can be used to receive payments from customers anywhere in the world.
Similarly, Commerce is a unique service that helps you sell your products through e-commerce sites such as Noon and Amazon. This is very helpful if you want to run your e-commerce business in Dubai, United Arab Emirates. And to make it more affordable to start your business. Their Easy Payment Plan allows you to spread the cost of starting your business in the Dubai Free Zone over several months.
Join thousands of other entrepreneurs who have set up successful businesses in the UAE. And take advantage of the 0% corporate tax rate that they continue to offer.