As of June 1, 2023, a corporate tax has been implemented in the UAE. The tax rate is from 0 % - 9 % and applies to any income earned through business enterprises.
Who needs to pay corporate tax
In accordance with Federal Decree-Law No. 47 from 2022, corporate tax must be paid by individuals and legal entities who regularly conduct industrial, commercial, agricultural, vocational, service or other operations with the use of either tangible or intangible assets. This includes companies located in the freehold zones, freelancers, and both resident and non-resident individuals who conduct business or entrepreneurial activities on the territory of the Emirates.
Resident companies are legal entities that are registered, formed or recognized in accordance with UAE laws. This applies to companies that are located both on the mainland of the country and in the free economic zones. Within the framework of the corporate tax laws, foreign companies and other legal entities can also be considered residents if their business activities are conducted in the UAE. Non-resident legal entities are those who are permanently established in the UAE or receive their income from government sources. They must pay tax on any income received from the permanent establishment. Profits earned in the UAE by non-residents and were not received at a permanent establishment, are subject to zero tax.
All individuals and legal entities who are required to pay corporate tax must register themselves and get a registration number. They must also file a tax return for each taxation period - within nine months of the end of that tax period. Every company must keep financial records and file a yearly corporate tax report with the Federal Tax Authority (FTA). This report must be filed even if there was no business conducted or income received, in which case, the tax will be zero.
If an individual does not conduct any business in the UAE and their income is earned salary or profits from personal or real estate investments, then they are not subject to corporate tax. For example, if you as an individual rented out or sold your property, then you would not need to pay corporate tax on the amount earned. Registration is also unnecessary.
How the corporate tax rate is calculated
The corporate tax rate depends on the total income received. Small businesses who report less than AED 3M (USD 817K) in profits in the tax period pay a tax rate of 0 %. Companies whose profits meet or exceed that amount pay a 9 % tax rate.
Companies who report up to AED 375K (USD 102K) in profit, pay zero corporate tax. If the income received is higher, for example AED 1M (USD 272), then AED 375K (USD 102K) of the total income is taxed at 0 % and the remaining AED 655 (USD 178K) is taxed at 9 %.
Resident and non-resident individuals in the UAE pay a 9 % corporate tax on their Gregorian-calendar-based yearly income if the profits come from business or entrepreneurial activities and meet or exceed AED 1M (USD 272K). Residents must pay tax on income earned from both the UAE and abroad. Non-residents are only required to pay tax on income earned in the UAE.
Corporate tax exemptions for companies in the free economic zones
If a company operates in a free economic zone, it can receive ‘qualified person’ status and reap the benefit of paying a tax rate of 0 %, though this only applies to ‘qualified income’. In order to obtain ‘qualified person’ status in an economic free zone, the following four criterion must be met:
- maintain an appropriate level of presence in the UAE;
- earn ‘qualified income’;
- accept standard corporate tax rates;
- comply with transfer pricing requirements.
Further information about corporate tax can be found on the Metropolitan Consulting website. Each company must pass an operational and business activities audit in order to identify the precise corporate tax rate they will be required to pay.