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Corporate Tax commencement in UAE from 1st June ’23

Published: April 18, 2023

The UAE has announced that corporate tax will be introduced on 1st June, 23. As a result of its announcement, businesses and tax professionals have been buzzing about it. As a result of this announcement, UAE is slated to become the fourth country among the GCC countries to enact a federal corporate tax.

As a world-leading hub for businesses and investment, the UAE’s introduction of a federal corporate tax will further strengthen the country’s position and accelerate its strategic objective for growth and transformation. Moreover, the corporate tax concept contributes to the achievement of international standards of tax transparency as well as avoiding harmful tax practices.

In light of the fact that corporate tax in UAE is a new concept, it is essential that businesses understand the concept. In this article, we’ve attempted to answer some of the most common questions you might have about corporate tax.

Find out everything you need to know by reading on!

What is the corporate tax in UAE?

A corporate tax is a type of direct tax levied on the net earnings or profits of corporations and other entities that conduct business on a global basis. In addition to its formal name, it is commonly referred to as ‘Corporate Income Tax’ or ‘Business Profits Tax.

Simply put, it is a tax imposed on businesses’ net profits. Taxes are imposed on companies based on a certain percentage of their profits.

Who should pay for corporate tax in the UAE?

Corporation tax applies to all businesses with taxable profits (net) over 375,000 AED and are required to pay a certain percentage of net profits.

How much corporate tax does the UAE charge?

A corporate tax rate of 9% is applied to the net profits made by companies. A 0% corporate tax rate will be applied to small businesses and start-ups with net profits up to 3,75,000 AED to provide support for them.

How long will it take for the federal corporate tax to be implemented in the UAE?

In 2023, the corporate tax UAE will be rolled out in the financial year that starts on or after 1st June.

How long will it take for the government to release the corporate tax law?

The tax law for corporations was already released by the authorities on 9th December 2020. An official website has been created for the purpose of providing information regarding the Federal Decree-Law no. 47 of 2022. 

Which businesses or incomes are exempt from corporate tax?

Due to the 3,75,000 AED profit threshold, businesses exceeding the threshold must pay corporate tax. There are, however, certain kinds of businesses or income that are exempt from corporate taxes. Taxes on corporate income are, however, exempt in certain cases. Below is a list of companies and incomes that are not subject to corporate taxes:

  • There will be no corporate tax for individuals. Consequently, there will be no corporate tax on any income from employment, real estate, investments in stocks, and other personal income not connected to a trade or business in the UAE
  • Investments by foreigners not engaged in UAE-based business are not covered
  • It is expected that tax incentives will continue to be offered to companies operating in free zones where all regulatory requirements have been met.
  • Businesses in the UAE do not have to pay corporate tax on capital gains or dividends received from qualifying shares
  • Transactions and restructurings within a group are not subject to this rule

What is the calculation of corporate tax in the UAE?

According to the UAE’s financial statements, corporate tax is calculated at 9% of net profit. In order to be subject to corporate tax, a company’s taxable net profit must exceed  375,000 AED. As a result, the net profit up to 3,75,000 AED is exempt from tax. 

An example is that if a company’s net profit is 4,75,000 AED, the company’s corporate tax is 9,000 AED (4,75,000-3,75,000 X 9/100).

The proposed UAE corporate tax: what does it mean for businesses?

As we move towards the D-day ‘June,2023’, which is still a long way off, a lot is going to happen in the federal corporate tax world. There is still plenty of time for businesses to prepare for corporate tax due to the proposed implementation date. 

There is much to study and understand about the corporate tax law, but one thing for sure is that financial statements are going to become even more crucial for businesses now that the law is out. As a result, the net profit on those statements is used as the basis to determine the corporate tax a company has to pay.

A company’s financial statements will be accurate if the business data is accurate, allowing for the correct amount of corporate tax to be calculated. Hopefully, by now, you have gained an understanding of the value the tax consultants in UAE will provide for your organization. It is possible for your business to be tax-ready in no time with the ability to generate financial statements such as profit and loss accounts, balance sheets, etc.

We are a tax consultancy that offers a variety of business modules to manage your growing needs. Using their expertise, our consultants produce instant reports on accounting, inventory, and financial statements, such as profit and loss accounts and balance sheets.

And there’s more? We also offer complete support for UAE VAT, including VAT invoice generation and VAT return filing.

In order to be business ready, you should take steps now to ensure a smooth transition to the corporate tax era on the day of implementation. You should put the right tax consultancy firm at the top of your list, not only for corporate tax purposes but also to ensure your business is managed efficiently.


By: Vickie Sharma

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