Are You Prepared for 2023 UAE Corporate Tax?
Not every country levies a 9% corporate tax! Only a handful of countries worldwide are tax havens, and luckily your business is located in one of them. In most countries, a significant amount of dough goes to the government in the form of taxes (there are plenty!), whether business persons or individuals. There are nations that are imposing a staggering 60% personal income tax and 37.5% corporate tax in addition to several other taxes including sales tax, income tax, property tax, inheritance and estate taxes, excise tax, and more.
2022 dawned on the UAE with so many surprises – some pleasant, some not! Forget about pleasant ones. Let’s talk about the one that is bothering you, and that is none other than the imposition of the federal-level corporate tax all across the UAE! With distinct exemptions and conditions, the corporate tax will be applicable to the income obtained by legal entities including individuals engaged in business/commercial/professional or any other economic activities for which a business licence or a permit is a must.
Find Your Silver Lining in the Dark Cloud
One bad news and one good! Bad first – You can’t evade taxes. They are as certain as death! And now the good news – tax deduction is possible with effective tax planning. Just find a qualified corporate tax consultant in Dubai and bingo! They will not only help you prepare for the 2023 UAE corporate tax but also make sure your transition into the next financial year is truly free from any glitches.
On the last day of the first month of 2022, the UAE government declared that after 1 June 2023 all businesses and entities registered in the UAE will be required to pay federal-level corporate tax (subject to exemptions) at the rate of 9% on meeting certain criteria. The eligibility measures have been set, keeping the UAE companies operating on a small or medium scale on a pedestal. The law and regulations in this regard are yet to be published in detail. In the meantime, you must know that you are subject to paying corporate income tax if you are:
- A business earning taxable income of more than AED 375,000 (US$ 102,000), provided you don’t come under free zone jurisdiction and take tax holiday benefits
- An individual making net profits above AED 375,000 from the activities that require a commercial licence
UAE Corporate Tax & Miscellaneous Costs
The federal corporate tax is applicable on profits and has nothing to do with the various costs associated with the business such as the cost of licences/permits, visas, health insurance and other operating costs. Businesses in the UAE will have to cough up corporate tax on their net taxable income at the applied rates of 0 to 9%. This move of the UAE government is a dead giveaway that the era when most businesses in the UAE do not pay tax on their business income is ending forever and a day. But the best part is the UAE will still remain a haven for tax exiles and will continue to lure foreign investors worldwide because the 9% corporate tax is still considerably low by global standards.
Know Corporate Tax
Corporate Tax or Corporate Income Tax or Business Profits Tax is a form of direct tax levied on the net income or profit of corporations and other businesses. Most countries in the world already have a comprehensive CIT regime, including most of the GCC Member States. Committed to meeting international standards for tax transparency and preventing harmful tax practices, the UAE also is going to implement CIT from 2023 to align itself with global tax standards while keeping the CT rate globally competitive. The decision is sure to cement the UAE’s position as a leading global hub for business and investment, and accelerate the UAE’s development and transformation to achieve its strategic objectives.
Understand Federal Corporate Tax in the UAE
Most companies in the UAE, whether free zone-based or mainland ones don’t have to pay corporate taxes on their income. Free zone corporations any which way are eligible to operate with a renewable, 50-year moratorium on corporate taxes. Nonetheless, beginning 1 June 2023, all the UAE-registered entities in the UAE will have to pay corporate income taxes subject to exemptions. All the in-scope businesses that register a net income or a taxable income of AED 375,000 or more are subject to pay corporate taxes from 01/06/2023 onwards. The UAE corporate tax rate may range from 0% to 15% depending on the companies’ profit generation capacity. This means the CT rate will be 0% for small businesses whose taxable income is below AED 375,000. While salaried people in the UAE will remain out of scope, individuals making more than AED 375,000 from freelancing and other home-based activities that by law requires licence or permit are not.
Corporate Tax Computations
Corporate taxes are calculated based on accounting net income. To arrive at the net income, which is also called net profit or net earnings, one has to consider all the income from all the revenue streams. They also are required to compute their expenses incurred to earn such incomes, which include operating expenses, interest on loans, depreciation, and amortization expenses, among others.
To calculate your corporate tax liability, you have to multiply the net or taxable income by the 9%. And to find out the taxable income from your business you have to deduct the sum of all expenses from the sum of total income. Be informed that the accounting net income (subject to certain adjustments) shall be in line with the accounting principles that are globally accepted.
Exemptions in the UAE Corporate Tax 2023 Scheme
Not every entity in the UAE has to pay corporate tax at the rate of 9%. The tax rate can go as low as 0% and as high as 15% barring the companies engaged in the extraction of natural resources. Take the statement with a pinch of salt until the detailed rules and regulations regarding the UAE corporate tax law are rolled out. With every law or regulation comes exemption as well. Maybe to reduce the burden from a certain group of entities to support them or to balance the economic contribution from each business. The new UAE corporate tax law also relieves some entities including individuals by exempting them from paying the tax at all and raising the rate for companies capable of making a fortune. Below we will see exemptions to the 9% corporate income tax that will be implemented on or after 1 June 2023 in the UAE for both individuals as well as corporations.:
For individuals making money in the UAE
- Income from employment
- Income from freelancing or from being engaged in business/commercial/professional or any other economic activities that are permitted only with a business licence/permit
- Income from real estate investments, as long as such investments are made in a personal capacity and not as a business that needs a commercial licence
- Income from any business or commercial activity for which the UAE law doesn’t demand licence or permit by law
- Income, capital gains and dividends from personal investments in shares and securities
- Income and interest earned from savings and deposit accounts
For businesses registered in the UAE
- Large-scale multinational companies meeting specific conditions may have to pay slightly higher corporate tax which has not been communicated yet
- Small and medium enterprises with registered income of not more than AED 375,000 are subject to 0% corporate tax
- Free zone registered companies that comply with all regulations and do not do business with mainland UAE companies will still benefit from free zone incentives including exemption from income and corporate tax
Free Zone Companies & UAE Corporate Tax
At the moment, it is unclear if the new corporate tax scheme significantly affects free zone companies. Based on early reports, the new corporate tax regime will continue to honour free zone incentives, recognising the contribution the economically free zones make to the UAE economy. Free zone companies that are operating in line with all regulations and do not do business with mainland UAE companies will still have a leg up on the non-free zone companies in terms of corporate tax in addition to other incentives such as 100 percent foreign ownership, 100 percent repatriation of capital & profits and import & export tax exemptions.
Offshore Companies & UAE Corporate Tax
Holding Double Tax Treaty agreements with over 40 other countries, the UAE has two main jurisdictions that offer offshore companies in the UAE – Ras Al Khaimah (RAK) and the Jebel Ali Free Zone (JAFZA), and both are “tax-free” jurisdictions that levy no income tax or corporate tax and permit 100% foreign ownership. The question – Will UAE offshore companies be subject to corporate tax from 2023 onwards? – is still not there in the MoF FAQs. But most business advisors in UAE and companies have a hunch that they would be treated in line with general free zone entities. Offshore companies typically have to prepare audited financial statements. The audit requirement may differ as per the details of the offshore regime.
UAE Corporate Tax Compliance Burden
The UAE corporate tax regime will have benevolent loss utilisation rules and will permit UAE groups to be taxed as a single entity or to apply for group relief in respect of losses and intragroup transactions and restructurings. The regime will also ensure compliance burden is kept to a minimum for businesses that prepare and maintain adequate financial statements. Furthermore, businesses must file one corporate tax return only each financial year and don’t need to make advance tax payments or prepare provisional tax returns.
Get Corporate Tax Prepared with Adam Global Dubai Tax Specialist
Businesspersons in Dubaiand other parts of the UAE are up to high doh! The next financial year is not too far! In the blink of an eye, June 2023 would be here! And there is no better time to get corporate tax prepared than now! There is a great deal to be done for every business to be able to achieve “day-one UAE CT compliance”. Pass the buck to an experienced corporate tax specialist instead of running round in circles, and sit back. The onus is on us to make you and your business tax ready before June 1, 2023, to ensure a smooth transition. Call us to know how Adam Global, one of the best business advisory companies in Dubai, can help you stay compliant with the newly introduced corporate tax law. Whether you are running a daycare facility, a beauty salon/barbershop, a real estate business, an e-commerce company, a supermarket or a digital marketing service firm. Your first consultancy with our expert corporate tax planner and advisor in Dubai is on us!