An Ultimate Guide to Corporate Tax in UAE for New Entrepreneurs

Some of the easiest ways to understand more about the corporate tax in UAE as a new entrepreneur include gathering a lot of information through research and consulting with professional tax accountants in the country. If you are on a tight budget, you may have no money to pay a consultant with expertise in the corporate tax in UAE, but you can read informative articles like this one to discover more.

The United Arab Emirates (UAE) is a busy global business hub, especially Dubai, and it is important to comply with the required tax obligations. Fortunately, the government has revised the corporate tax (CT) law to make it easy for businesses and to meet their growth objectives at the same time.

The New Corporate Tax in UAE

Before the new corporate tax in UAE, the government did not tax profits from many corporations except for a few businesses dealing with finances and those companies involved in the extraction of resources.

According to the announcement made by the UAE government, many companies will pay a 9% CT from June 2023. This is a flat rate tax on all profits exceeding 375,000 AED. Businesses with profits below this will pay a 0% CT.

Additionally, some of the biggest businesses will pay more taxes as guided, while those that have been paying higher taxes, especially the resource mining companies, will continue to pay as usual. For now, the businesses that are subject to the new corporate tax in UAE should take the time to prepare for the new remittances because the CT will become effective from the 1st of June 2023.

What the Corporate Tax in UAE Looks Like

Although it is said that the Corporate Tax UAE will be a flat rate of 9%, there are a variety of policies surrounding it. As an entrepreneur or anyone who is about to start a business, it is good to understand this. For those interested in formal recognition, there are many courses offering certificates in corporate innovation that can boost your credentials.

Who will be taxed?

The government through its public education initiative, an official government website, and other platforms has listed who will be taxed. Businesses and entities registered as LLCs, LLPs, PSCs, and others will be subject to the 9% CT if their profit is above 375,000 AED, as we have already mentioned. Larger entities will continue to pay their taxes as usual.

Who is exempted?

Although this is a flat rate tax imposed on all businesses, there are numerous exemptions as guided by the government. By now, you already know that businesses with a profit of lower than 375,000 AED will not pay. This is a boost to SMBs that are already struggling to meet their operating costs and grow at the same time. Lastly, investment fund entities, charity organizations, government-owned companies, oil extraction companies, and others will be exempted from the corporate tax in UAE.

Tax group qualification

Some companies can form groups to make one taxable entity. This helps such companies to boost each other in fulfilling this obligation. There is a clear guideline on how entities can group. Typically, these are related companies with legal proof of their relationship, and they need combined management of their operations. Conglomerate mergers are common in bringing various companies together, and they automatically form a tax group.

Free zone businesses

There are many businesses in free zone areas, and it is not clear how the corporate tax in UAE will be imposed on these companies. Currently, these businesses do not pay a corporate tax in accordance with the existing incentives.

However, it is anticipated that this may not continue for long as the UAE is looking to increase its income through taxes. It has also promised to reciprocate by protecting all businesses from tax exploitation and by improving the infrastructure that benefits everyone in the country including the businesses.

Benefits of the New Corporate Tax in UAE

There are numerous benefits of the corporate tax in UAE both to the government and the business sector in Dubai and the entire country. Regardless of the angle from which you look at it, the best path is to comply for mutual benefit. Here are some of the advantages.

• Boosting government revenue – Most of the businesses that will start paying the CT were not subject to any tax before. As such, this is an additional income for the government. According to the information provided by government officials, this will reduce the reliance on hydrocarbon income, help the government to achieve many strategic goals, and boost foreign investments to secure the future of the country.
• Increase the GDP – The United Arab Emirates has a strategy to increase its GDP with non-oil sources, and this corporate tax in UAE is just another way to achieve this goal. Because Dubai and other cities in the UAE have a vibrant business culture, this potential government finance stream is exempted to grow the revenue in the coming years.
• Improve public infrastructure – Another benefit of CT is that it will enable the government to improve roads, rails, ports, and other public amenities that benefit businesses. In other words, every citizen will feel the effects of this new income.
• Protect businesses from tax exploitation – As soon as businesses start to remit the corporate tax in UAE from June this year, they will no longer be prone to tax exploitation. Currently, there are no clear guidelines for tax obligations for many businesses, and there have been many cases of tax exploitation for some businesses in the past. The current CT law is clear on what corporations will pay on their proceeds. It is also clear on the exceptions as seen above.
• Fair world-class tax rates – According to the government, the 9% corporate tax in UAE is one of the lowest in the world. If you check, some countries tax as high as 30% CT; hence, businesses in the UAE can be glad of a very competitive environment.

Final Words

Corporate tax in UAE is a new initiative by the government to benefit everyone in the business sector. It has been welcomed particularly because it is fair and since businesses are eager to see how their taxes will benefit them. If you are an entrepreneur in the country, get ready to adjust your tax calculations and other costs to accommodate the 9% corporate tax in UAE.