Ever since the launch of corporate tax in 2023 by the Ministry of Finance UAE, the tax policies regarding small and large businesses have undergone considerable change.
The Federal Decree-Law no 47 of UAE states that those people who have a permanent residence in UAE, are liable to corporate tax on their income. It also establishes that non-residents will only be taxed on income that they earn within the UAE.
The corporate tax law in UAE is aimed at improving the country’s revenue, infrastructure, and public services. Getting assistance from a Tax consultant in Dubai can help you a lot in navigating the Corporate Tax landscape.
As the UAE plans to further implement the corporate tax policies with more force in 2024, it is important that you learn more about them. Here is all you need to about the corporate tax in UAE
Who Needs to be Registered for Corporate Tax in UAE?
The FTA’s federal decree no 47 clearly states that every taxable person needs to register for this tax and get a registration number. Even the exempted persons are urged to get registered for corporate tax in UAE so that there is a record of them.
This raises the question of who are these taxable and exempt persons or businesses. In this section, we will look at these in detail to give you a better idea.
Taxable Persons and Entities
All the businesses and individuals that are involved in commercial activities are subjected to corporate tax.
Corporate tax registration is applied to an individual in UAE if they are in a business activity either in a direct or indirect manner. It also applies to juridical persons based in the UAE and foreign juridical persons in the UAE.
Those entities that are based in the UAE are considered “Residents” and that makes them liable to corporate tax. A foreign company that is managed, controlled, or run from UAE can also be treated as a ‘Resident’.
After the completion of the registration, the taxable persons or entities have to pay about 9% income tax if their net profit is above AED 375,000.
Entities Exempt from Corporate Tax in UAE
According to Article 51 of the Decree, all taxable persons will register for corporate tax. In this same decree, the ministerial decision no 7 and 23 of 2023 also gives information regarding some exceptions from registration.
According to these decisions, the following entities are exempt from the corporate tax
- The corporate tax will not apply to the employee’s salary. But if an individual is earning from freelancing and their income exceeds the taxable amount, they will have to pay the tax.
- Intra-group transactions are not impacted by the corporate tax.
- Purely government or government-controlled entities.
- People engaged in executive businesses.
- Non-residents who do not have permanent establishments in UAE.
All the companies that are doing business in the region can look at the withholding tax divisions to keep up with the corporate tax laws and determine if there is a way, they can be exempt.
The main goal of the latest tax laws is to reform the taxation system of the UAE to bring economic growth, development, and long-term stability.
Resident VS Non-Resident Persons
The corporate tax law of UAE has a very specific and unambiguous definition of Residents. It states that any entity that is legally registered in the UAE is a Resident. This also includes entities that are based in Free Zones or in other countries but are controlled and managed by the UAE. Natural individuals engaged in businesses in the region are also treated as Residents.
A non-resident is an individual or entity that does not meet the criteria mentioned above. They still might have a permanent establishment in the UAE and receive revenue from the government.
Non-residents have to pay corporate tax if their income is greater than the taxable sum that is attributed to the PE or permanent establishment. 0% withholding tax is applied to income that is not treatable to PE for non-residents in UAE.
No matter whether you are a resident or non-resident, if your business is taxable under the law, you need to get yourself registered. If your business *has just started, you have a period of 26 months to register for corporate tax.
After the registration, you have 9 months to file your tax returns to the FTA.
Final Words
The UAE corporate tax is a Federal Tax which means it is applied to all regions of the Emirates and to all the businesses that fall under the taxable category.
No matter whether you are a taxable person or a Free Zone person, you need to register for corporate tax and fulfill your duty as a responsible citizen of the UAE.
Remember to always assess the risks of pre and post-corporate tax implementation. Doing this before registration will help you plan your tax returns in a way that fulfills all the requirements and prevents violations.
