The UAE was prominently known for being a tax-free nation for decades until recently. The Taxation of Corporations and Businesses, or UAE Corporate Tax 2023 (CT), was introduced by the UAE government on December 9, 2022. This is the first-ever federal income tax announced by the country.
According to the Official UAE government portal, depending on the business’s financial year, either 1 July 2023 or 1 January 2024 will be the start date for the tax. All seven emirates will implement the CT. UAE businesses will be subject to a 9% tax, which will be calculated on annual company profits over AED 375,000 ($102,000).
A 0% rate will apply to profits under Dh375,000 in order to encourage entrepreneurs and start-ups. Smaller companies may still be able to get a refund from the tax authority as a result.
The 9% tax rate, however, is lower than the OECD’s global minimum of 15%.
With the new corporate tax system, the UAE aims to solidify the country’s position as a top international hub for trade and investment. In addition to speeding its growth and change in order to meet its strategic goals. And furthermore, to reiterate the UAE’s dedication to avoiding unfair tax practices and fulfilling international norms for tax transparency.
Any business located in free zones is exempt from the UAE corporate tax 2023, However, they will need to meet other specific requirements. On the other hand, there are further details that are very important to read and understand for businesses on the UAE mainland.
UAE Corporate Tax in Free Zones
The various Free Zone firms in the UAE have been a major economic driving force in the country’s worldwide trade. Free Zones are exempt from a variety of taxes, including corporate tax,100% customs and VAT exemptions, and 100% return of capital and profits.
The UAE Corporate Tax (CT) will be applicable to:
- All individuals owners and businesses under a commercial business license in the UAE
- All free zones that meet specific requirements and do not operate on the mainland are exempt from the CT
- Only foreign organizations and people who regularly or continuously conduct trade or commerce in the UAE
- Banking activities
- Business activities in real estate, construction and development, and brokerage
The following individuals and entities are exempted from the incoming CT in the next year:
- Businesses involved in the extraction of natural resources are free from CT. As they will continue to be subject to the present corporate taxation at the Emirate level
- CT won’t apply to dividends or capital gains that a UAE business makes from its qualified shareholdings
- If the prerequisites are satisfied, qualifying intra-group transactions and reorganizations won’t be subject to CT
CT rates, according to the Ministry of Finance, are:
- 0% for income up to AED 375,000
- 9% applied on income over AED 375,000
A new tax rate is applied to major multinational corporations that follow certain standards. The tax rate will soon be available to the public.
The administration, collection, and enforcement of the CT will fall within the purview of the UAE Federal Tax Authority.
For entrepreneurs and foreign investors in the UAE, it is crucial to receive timely legal updates. To make the documentation process for your business and to stay at the top of the charts, you can hire professional PRO services in UAE, who can handle all the licensing, documentation, and visa-related services for you.