Corporate tax in UAE on the profits of any business was announced on 31st January 2022 but brought into practice from 1st June 2023.
Even after its implementation, investors and entrepreneurs are still debating about corporate tax in UAE and its impact on the nation’s overall economy.
Continue reading to learn about corporate tax and its impact on businesses and key stakeholders.
Key things to know before learning the impact of Corporate Tax in UAE
Following are the key factors you should know before opting for corporate tax in UAE:
- Who falls under the criteria of paying Corporate Tax?
If you own a company that is in the UAE mainland and earns profit out of doing business in the nation or any resident who pays tax to the UAE government, you are liable to pay corporate tax.
To make you understand better, here are some companies that fall under the criteria of paying corporate tax:
- Native UAE Companies or resident companies that make a profit in UAE.
- Ex-pats who have a permanent establishment in the UAE.
- Non-resident companies that conduct their activities in UAE and make a profit out of that.
- A person who pays tax to the UAE government.
The table below explains the terms resident and non-resident companies in the UAE
|
Resident company in UAE |
Non-resident company in UAE |
|
Resident companies that manage to conduct their activity over the global market in UAE and earn profit out of that are subject to pay corporate tax in UAE. |
Entity that is not a resident of UAE. Only the UAE-sourced income is liable to pay corporate tax in the UAE. |
This is not the case if you own a company in a freezone. Here, you don’t have to pay any corporate tax. Tax or any capital paid there is based on that particular authority.
Note: The mandatory is only for the mainland.
- Who doesn’t need to pay Corporate Tax in the UAE?
Businesses that are involved in charities, NGOs, oil companies, investment funds or companies owned with government funds are exempted from paying corporate tax.
- How is the Corporate Tax calculated?
The company’s net profit and loss, including in financial statements, will determine its tax percentage.
- How to avoid double taxation
If you own a business in some other country and have paid tax there already, the UAE government will allow you to deduct that money from the tax you pay in your home country to avoid double taxation.
A progressive UAE Corporate Tax rate
|
Particulars |
Rate of Tax |
|
The maximum annual taxable income should be AED 375,000/-. |
0% |
|
The amount of taxable income exceeds AED 375,000/- per year |
9% |
|
*MNCs that make a profit of more than EUR 750 million (i.e.) around AED 1.25 billion are subjected to paying corporate tax in UAE |
|
What are all the items that will not be recognised as deductions during Tax calculation?
Generally, every single expenditure made for business purposes is allowed to be calculated for a tax deduction. However, the UAE government has listed a few items in their public consultation paper that will not be considered for tax deduction.
- Only 50% of entertainment costs, such as meals, events or outings of clients or shareholders.
- Penalties of administration.
- Recovery on VAT
- Any donations made to an unauthorised or unapproved organisation.
- Any profit and loss that has not been disclosed or released.
- Any interests that exceed 30% of EBITDA
- When the income is received from free zone residents, it is taxed at a 0% rate.
Impact of Corporate Tax in UAE on Businesses
New costs will be implemented in businesses. A new corporate tax means extra work on the finances of all the businesses. Thi includes all their paperwork, training and dealing with tax authorities.
- Increase in the cost
Businesses to make a profit or to retain the profit made before the implementation of corporate tax, will increase the price of their products. This will make the goods a little more expensive than before.
- Increase in cost decreases the consumption
When businesses start increasing the price, consumption might decrease due to the increased cost of living. This might impact the economy of the nation as a whole.
- Impact on investors
Investors who already invested and who wish to invest in UAE in future will now think twice before proceeding, as the increased cost of goods might cause loss to the investors.
- Impact on workers
As the cost of living might increase, the worker may ask for higher wages and this could push the businesses to increase the price a bit more to pay their workers.
In short, the implementation of corporate tax in UAE will impact everyone with a high cost of living. This might impact the nation’s economy a bit. It’s like adding a little sand to the gears of the UAE’s smooth-running economic machine.
Expert’s advice
If you wish to do a business setup in Dubai, UAE and are confused about the processes and this new corporate tax and its process, contact the expert. Professional advice will always lead you to the success of your business.
Contact Commitbiz, your one-stop solution for all your business-related issues.
