A Comprehensive Guide of Corporate Tax in the UAE in 2024

Harsh Drolia

Harsh Drolia

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Corporate tax is a critical aspect for any business operating in Dubai, UAE. With the UAE government introducing a federal corporate tax in June 2023, businesses need to navigate this new landscape carefully. This guide will walk you through the essentials of corporate tax in Dubai, from tax rates and exemptions to compliance obligations and strategic planning.

Overview of Corporate Tax in Dubai, UAE

The UAE’s introduction of a federal corporate tax marks a significant shift in the region’s business environment. This tax applies to all companies, both foreign and locally owned, with specific provisions for free zone businesses.

Until recently, the UAE was known for its tax-free business environment. The shift to a federal corporate tax regime reflects a broader global trend towards ensuring that businesses contribute to the economies they operate in, aligning with international standards.

The UAE corporate tax system is designed to be straightforward yet comprehensive. It includes a fixed tax rate and clear guidelines on taxable income, deductions, and compliance requirements.

Who is subjected to corporate tax in the UAE?

Corporate Tax (Corporate Income Tax) is a form of direct tax applied to the net income or net profit of corporations. Before we cover who is subjected to Corporate Tax in UAE, here are the key features of the new UAE CT rule: 

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UAE Corporate Tax overview and key features

As per the UAE CT law, you will be subjected to corporate tax rules if you fall into any of the following buckets: 

  • Business activities under a commercial license in the UAE: This includes both local and foreign entities, regardless of their size or industry. If you are conducting business activities under a commercial license in the mainland UAE, you should be ready for the corporate tax.

  • Free zone businesses: If you run a free zone business that is not a QFZP (Qualified Free Zone Person) and does not meet the qualifying income criteria, you will be subject to the free zone corporate tax. 

  • Foreign entities and individuals: If you are a foreign entity or a foreign individual, then you will be subject to the corporate tax only if you conduct a trade or business in the UAE in an ongoing manner. The corporate tax law covers enterprises that have a physical presence in the UAE, such as a branch or office.

  • Banking operations: Banks and other financial institutions will also be subject to corporate tax. This includes both local and foreign banks operating in the UAE.

  • Real estate and construction businesses: The new corporate Tax will also cover businesses engaged in real estate management, construction, and development, or brokerage activities.

In addition, non-resident persons will be applicable for UAE Corporate Tax if they:

  • Have a permanent establishment in the UAE: Non-resident businesses that have a fixed place of business in the UAE in the form of an office, branch, warehouse, or factory will be covered under the corporate tax. Only the income earned through UAE operations will be subjected to CT, not global income.

  • Generate UAE source income: Non-resident businesses that earn income from selling goods, providing services, or other business activities in the UAE will be subject to corporate tax. 

  • Have a nexus in the UAE (decision awaiting): This refers to the connection or link that a non-resident business has with the UAE. The specific criteria for what constitutes a nexus (significant presence) for a juridical person are still under consideration by the UAE authorities. 

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Corporate Tax Rates in Dubai, UAE

The following tax rates mean that small businesses can operate with minimal tax burdens, while larger companies contribute more significantly to the economy. Understanding these implications helps businesses plan their finances and tax strategies more effectively.

Tax Rate Breakdown

  • Profits up to AED 375,000 taxed at 0%.

  • Profits above AED 375,000 taxed at 9%.

  • MNEs with global revenues over AED 3.15 billion subject to OECD rules.

  • Until Pillar 2 rules adopted, MNEs taxed under regular UAE regime.

  • Taxable profits based on accounting profits with adjustments.

Tax Exemptions and Incentives in Dubai, UAE

The UAE government provides several tax exemptions and incentives to businesses, fostering a favorable environment for economic growth and investment. Certain industries, such as extractive businesses, benefit from tax exemptions granted by the UAE government to encourage their development and contribution to the economy.

Additionally, the UAE has established Double Taxation Avoidance Treaties (DTAs) with numerous countries, aiming to prevent double taxation of income earned by businesses operating internationally. These treaties enable businesses taxed in the UAE to potentially claim tax credits in their home countries, promoting cross-border trade and investment.

Notably, individual employment income is exempt from taxation in the UAE, providing a significant advantage for employees working in the country. Moreover, specific types of personal income, such as dividend income and rental receipts from UAE real estate investments, enjoy tax exemptions. This includes income derived from investments held through private or family trusts, subject to certain conditions.

These tax exemptions and incentives play a crucial role in attracting businesses and skilled professionals to Dubai and the wider UAE, contributing to the region’s economic prosperity and competitiveness on the global stage.

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Compliance and Reporting Obligations

Businesses in Dubai need to stay on top of several important tax compliance and reporting requirements. Here’s what you need to know:

  • Maintaining Proper Financial Records: You’ll need to keep detailed financial records, including accounting books, invoices, receipts, and other documents. Good record-keeping is essential for accurate tax reporting and financial management.

  • Preparing Annual Financial Statements: Every year, businesses must prepare financial statements that comply with International Financial Reporting Standards (IFRS) or other relevant accounting standards. These statements provide a clear picture of your financial health.

  • Filing Annual Returns: It’s crucial to file your annual tax returns with the tax authorities. This ensures that all your income and expenses are reported accurately and that you pay the correct amount of tax.

  • Renewing Licenses: Don’t forget to renew your business licenses regularly with the relevant authorities. Keeping your licenses up to date is vital for staying compliant and avoiding any legal issues.

  • Fulfilling Regulatory Requirements: Make sure you meet all other regulatory requirements, like obtaining the necessary permits and licenses for your business activities. This helps you avoid fines and ensures smooth operations.

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Key Priorities to Prepare for UAE Corporate Tax

As the corporate tax in the UAE has taken effect, it’s essential to focus on certain areas to ensure your business is ready for the upcoming tax cycle. Here are some key steps to consider:

  • Ensure QFZP Compliance: Make sure your business meets all the conditions for Qualified Free Zone Person (QFZP) status, including qualifying income, substance requirements, and other criteria.

  • Review Accounting Policies: Thoroughly review your accounting policies, especially those related to depreciation, provisioning, and amortization, to ensure they align with the new tax laws.

  • Consider Deferred Tax: For the financial year 2023, evaluate if you need to account for deferred tax in your financial statements, particularly if you’ve made significant capital investments.

  • Check Tax Deduction Requirements: Review major expense categories to ensure they qualify for tax deductions under the new corporate tax legislation.

  • Plan Transfer Pricing Profile: Prepare for the new transfer pricing rules to ensure compliance and avoid penalties, as these will impact your effective corporate tax rate.

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Corporate tax in Dubai, UAE, is a vital consideration for businesses operating in the region. Understanding the tax rates, exemptions, compliance requirements, and strategic planning can help businesses navigate this landscape successfully. Stay updated with Meydan Free Zone on the latest changes and seek professional advice to ensure compliance and optimizing tax liabilities.

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