Corporate Tax in the UAE: Everything You Need to Know

The UAE has long been recognized for its business-friendly environment, with no personal income tax and minimal corporate taxation. However, with the introduction of corporate tax under Federal Decree-Law No. 47 of 2022, businesses must adapt to a new financial landscape. This guide dives deep into the UAE’s corporate tax regime, providing actionable insights and practical examples to help businesses navigate this change with confidence.

What is Corporate Tax?

Corporate tax is a direct tax levied on the taxable income of businesses. In the UAE, this tax applies to all taxable income exceeding AED 375,000. The objective is to align the UAE with global tax standards while fostering economic growth.

Corporate Tax Rates in the UAE

• 0% Tax Rate: Applicable on taxable profits up to AED 375,000.
• 9% Tax Rate: Applicable on taxable profits exceeding AED 375,000.

Example:

A company with taxable profits of AED 500,000 will pay:

• AED 0 on the first AED 375,000.
• AED 11,250 (9% of AED 125,000) on profits exceeding AED 375,000.

Who is Subject to Corporate Tax?

According to Article 2, corporate tax applies to:

1. Resident Businesses: Includes companies and individuals engaged in commercial activities.
2. Free Zone Entities: Applies to non-qualifying income generated outside the free zone.
3. Foreign Companies: If operating through a permanent establishment in the UAE.

What About Free Zones?

Free zone entities benefit from preferential tax rates, provided they comply with the criteria outlined in Article 18. This includes:

• Maintaining adequate substance in the State.
• Deriving Qualifying Income as per Cabinet Decision No. 100 of 2023.
• Not electing to be subject to Corporate Tax under Article 19 of this Decree-Law.
• Complying with Articles 34 and 55 of this Decree-Law.
• Meeting any other conditions as may be prescribed by the Minister.

Failing to meet these conditions could subject free zone businesses to the standard corporate tax rate.

Understanding Taxable Income

Taxable income is derived from accounting profits, with adjustments for:

1. Exempt Income: Such as dividends from UAE companies or qualifying capital gains.
2. Non-Deductible Expenses: Including personal expenses, fines, and bribes.
3. Specific Deductions: Like depreciation and employee benefits.

Example Calculation:

• Revenue: AED 1,500,000
• Deductible Expenses: AED 900,000
• Exempt Income: AED 200,000
• Taxable Income: AED 400,000

Corporate tax applies to the taxable income exceeding AED 375,000 at 9%.

Penalties for Non-Compliance

Penalties can be significant for businesses failing to comply with corporate tax requirements:

1. Late Registration Penalty:
   • A fixed penalty of AED 10,000 is imposed for failing to register for Corporate Tax within the specified timeframe.
2. Late Filing Penalty:
   • A penalty of AED 500 per month (or part thereof) is applied for the first 12 months of late submission of a Corporate Tax return.
   • From the 13th month onwards, the penalty increases to AED 1,000 per month (or part thereof).
3. Late Payment Penalty:
   • A monthly penalty calculated at 14% per annum for each month or part thereof, is levied on the unsettled payable tax amount.

Pro Tip: Avoid penalties by working with experienced tax consultants to ensure timely and accurate filings.

Corporate Tax and Transfer Pricing

The Corporate Tax Law emphasizes the importance of transfer pricing compliance for businesses with related party transactions. Key requirements include:

• Preparing and maintaining Transfer Pricing Documentation.
• Ensuring transactions align with the arm’s length principle, as outlined by the OECD.

How Wisdom Consultants Can Help

Navigating corporate tax requires a strategic approach and thorough understanding of the law. At Wisdom Consultants, we specialize in:

• Assisting with FTA tax registration.
• Preparing accurate corporate tax filings.
• Providing detailed advice on allowable deductions and compliance with transfer pricing regulations.

Contact us today to ensure your business thrives under the UAE’s corporate tax regime!

Final Thoughts

The UAE’s corporate tax system is designed to support economic growth while ensuring fairness and transparency. Staying compliant isn’t just about avoiding penalties; it’s about positioning your business for sustainable success. With proper planning and expert guidance, your business can confidently navigate this new chapter.