Guide on UAE Corporate Tax

The United Arab Emirates (UAE) implemented a federal Corporate Tax (CT) system in June 2023. This new regime aims to diversify the country's revenue streams and position it as a more competitive global business hub. This guide will provide you with a comprehensive overview of the key aspects of UAE Corporate Tax.

Who is Subject to UAE Corporate Tax?

The CT applies to most businesses and commercial activities conducted within the UAE, with a few exceptions. Here's a breakdown of who is subject to the tax:

• Resident taxable persons: This includes businesses registered in the UAE mainland and some free zones.
• Non-resident taxable persons: These are foreign companies with a permanent establishment (PE) in the UAE. A PE is generally a branch, office, or any other fixed place of business through which the foreign company conducts its activity.

Key Features of UAE CT

• Tiered Tax Rate System: The UAE CT features a tiered system with the following rates:

1. 0%: Applicable to taxable income not exceeding AED 375,000 (approx. USD 102,100). This offers relief to small businesses.

2. 9%: Standard rate applicable to taxable income exceeding AED 375,000.

3. 15%: Applies to large Multinational Enterprises (MNEs) meeting specific criteria related to group revenue.

• Exempt Persons and Activities: Certain entities and activities are exempt from CT. These include:

1. UAE government entities and entities wholly owned by them.

2. Public benefit entities meeting specific conditions.

3. Qualifying free zone persons earning qualifying income (refer to specific free zone regulations for details).

4. Extractive businesses (oil & gas) subject to separate arrangements.

Important Considerations

• Small Business Relief: Businesses with taxable income below AED 375,000 qualify for a 0% tax rate.
• Free Zone Companies: The CT treatment for free zone companies depends on their specific free zone and the type of income earned. Qualifying free zone persons earning qualifying income are generally exempt from CT. However, non-qualifying income earned by them is subject to the 9% tax rate.
• Transfer Pricing: UAE CT Law incorporates transfer pricing rules, which aim to ensure transactions between related parties are conducted at arm's length (fair market value).
• Double Taxation Agreements: The UAE has existing Double Taxation Agreements (DTAs) with many countries. These DTAs help avoid double taxation on the same income earned in both countries.

Register For Corporate Tax

According to Decision No. 3 of 2024 from the Federal Tax Authority, starting from March 1, 2024, the FTA has set forth deadlines for all businesses and taxable individuals to enroll. This enrollment pertains to all businesses (legal entities) possessing a trade license. The deadlines are staggered to allow the FTA enough time to properly evaluate applicants.

Regardless of the year of issuance of the license, the date of license issuance is taken into consideration.

Here are the deadlines for submitting a Tax Registration application:

• License issued between January 1 and January 31: May 31, 2024
• License issued between February 1 and February 28/29: May 31, 2024
• License issued between March 1 and March 31: June 30, 2024
• License issued between April 1 and April 30: June 30, 2024
• License issued between May 1 and May 31: July 31, 2024
• License issued between June 1 and June 30: August 31, 2024
• License issued between July 1 and July 31: September 30, 2024
• License issued between August 1 and August 31: October 31, 2024
• License issued between September 1 and September 30: October 31, 2024
• License issued between October 1 and October 31: November 30, 2024
• License issued between November 1 and November 30: November 30, 2024
• License issued between December 1 and December 31: December 31, 2024

For individuals without a license on the effective date of this Decision:

• Three months from the effective date of this Decision

Businesses failing to submit their Corporate Tax registration applications within the specified timelines will face an administrative penalty of AED 10,000 for late registration.

Conclusion

The UAE's corporate tax rules are new and evolving, so it's smart to have a well-thought-out plan from the start. This will make it easier to adjust to any future changes. Since the tax landscape is constantly shifting, it's important to regularly review your strategy and get advice from UAE tax experts. By being proactive and staying informed, your business can handle the complexities of UAE corporate taxes.