Corporate Tax Compliance
Exploring UAE Corporate Tax- Rates, Elements & Exemptions
The UAE government implemented a corporate tax on June 1, 2023. Corporate taxes, often known as Business Income Tax or Corporate Income Tax, are levied on a company's overall profits. With the implementation of Corporate tax, the UAE government wants to increase its reputation as a major economic hub, combat tax fraud, and meet international standards for tax transparency.
The corporate tax rules include a 9% tax rate on taxable income above AED 375,000 and a 0% tax rate on taxable income up to AED 375,000. The government sets all UAE corporate tax rates, and multinationals follow strict conditions outlined by the OECD's 'Pillar Two' tax base erosion and profit shifting initiative. Fortius offers professional corporate tax compliance services to maximize your company's financial potential. In this blog, let us discuss UAE Corporate Taxes, their elements, rates, and exemptions in detail.
Corporate Taxes in the UAE: 10 Key Items - A Quick Look
The following aspects represent the heart of the recently announced Corporate Taxes by the government of the United Arab Emirates in accordance with its laws:
Corporate taxes do not apply to foreign investors who do not operate companies in the UAE.
Qualified intragroup operations and reorganizations are exempt from Corporation Tax.
Companies operating in free zones can still receive corporate tax exemptions if they meet the requirements.
Capital gains and dividends from related shares of a UAE-based company are not subject to corporation tax.
Corporations must pay corporate tax on their adjusted accounting net earnings.
There is no withholding tax on international or domestic payments.
Emirate-level corporate taxes apply to resource extraction.
Companies can use foreign tax credits to offset the corporate tax burden.
Companies could benefit from loss transfer and utilization legislation.
Corporate tax does not apply to income derived from stock investments in real estate and earnings from sources unrelated to business operations in the UAE.
Top Three UAE Corporate Tax Exemptions
All income earned with a business license in the UAE is subject to corporation tax. On the other hand, natural resource extraction companies will be subject to emirate-level corporate tax instead of the UAE corporate tax. Individuals and businesses exempted from the UAE 9% business income tax are listed below:
UAE-based individuals
This includes UAE-based individuals earning from employment, engaging in independent income activities via a business license, and those involved in personal real estate investments. Also exempted are those undertaking commercial or economic activities not requiring licensing or authorization under UAE law. Additionally, this exemption includes individuals benefiting from dividends, capital gains, investments in stocks and bonds, and income from savings and deposit accounts.
For companies registered in the UAE
Regarding companies registered in the UAE, the tax scenario is multifaceted. Sizeable multinational corporations adhering to specific criteria might face increased corporate tax rates, pending government legislation. Meanwhile, entities with registered incomes below AED 375,000 are exempt from such taxation. Moreover, companies benefit from tax exclusions if they hold UAE-based company holdings generating capital gains and dividends. For businesses within free zones meeting the set criteria and exclusively engaging within the zone, income taxes are also waived, adding an extra layer of complexity to the tax landscape.
Free Zone Businesses
The new corporate tax regime will continue to recognize the incentives of free zones to appreciate the contribution of free zone-based companies to the UAE economy. As a result, companies operating in free zones that do not do business with companies in the mainland UAE will continue to enjoy an advantage over those operating in non-free zones.
A Brief Explanation on Offshore Business Exemption Details
Corporate tax advisers in the UAE are not sure whether offshore corporations are subject to tax. Offshore corporations would be subject to the same restrictions as free zone companies, according to the United Arab Emirates trade advisory report. In addition, the standards for audited financial statements of foreign corporations may vary.
The takeaway
The Corporate Tax system caters to diverse needs, from individuals' earnings to varied business entities. Tailored rates and strategic exemptions underscore the nation's commitment to equitable growth and international standards. As we traverse this intricate path, understanding these facets becomes key for compliance and strategic planning, fostering a robust economic future. Contact Fortius consulting services to get professional corporate tax compliance services.
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