Corporate tax (CT) is a type of direct tax applied on the net income or profit generated by corporations and other legal entities. Corporate Tax is also known as "Corporate Income Tax (CIT)" or "Business Profits Tax" in other countries.
Scope of Corporate Tax in UAE
The UAE has implemented a federal tax system that applies to all firms and commercial activities operating inside each of the seven emirates.
There are, however, several exceptions:
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Businesses involved in the extraction of natural resources. These will continue to be subject to the relevant Emirate's tax decrees.
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Individuals earning revenue in their own capacity (e.g., salary, investment income) as long as the source of income does not necessitate a commercial license.
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Businesses registered in Free Trade Zones, as long as they meet all regulatory standards and do not conduct business with UAE Mainland.
It is worth noting that the international banking industry, which has previously operated under the Emirate level Bank Tax Decree, will now be subject to the UAE Federal Tax Law. The effect of UAE Corporate tax on the Emirate level banking tax decree will be disclosed in due course. This will be a big change for both international bank branches that must comply with the new law and local banks that, like other firms, will now be liable to corporate tax.
Taxes for companies in UAE
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Companies incorporated in Dubai must pay taxes on their earnings, but not all do. A new tax law went into effect in early 2023, imposing a 9% corporate tax on income above AED 375,000 (about USD 100,000).
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Oil companies in Dubai are liable to a maximum corporate income tax of 55% on income derived from the UAE. Foreign bank branches in Dubai must pay a 20% tax rate on their Dubai income tax .
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Taxable revenue is computed differently for the two categories of taxable businesses such as banks pay tax based on their audited financial statements, whereas oil firms pay tax based on their concession agreements. Other sorts of taxes, such as royalties, must also be paid by oil firms in Dubai. Always remember that the corporations named above are not subject to withholding taxes on profits and interests transferred abroad. Dubai law firm can provide you with additional information regarding
Taxable Income in UAE
The taxable income of each Taxable person shall be calculated on the basis of a business's standalone financial statements prepared for financial reporting purposes in conformity with the accounting standards used in the UAE. Businesses will be able to use their own accounting period. To arrive at the Taxable Income, the Profit or Loss stated in the Financial Statements must be adjusted for specific items that have been specifically exempted, authorised or rejected, or for relief offered under the UAE Corporate Tax .
To arrive at the Taxable Income in UAE , adjustments must also be made in connection to transactions with Related Parties and Connected Persons as provided by law.
For instance the Taxable Income in UAE , adjustments must be made in connection to transactions with Related Parties and Connected Persons as provided by law.
The Taxable Income shall be adjusted by the brought forward losses in accordance with the legislation.
Furthermore, for the purpose of calculating Taxable Income for the relevant Tax period, a Taxable Person may elect to account for gains and losses on a realisation (cash) basis rather than an accrual basis and make adjustments for the unrealised gain or loss in relation to all assets and liabilities held on revenue account.
Being business ready is not with regard to what you do on the day the corporate tax goes into effect, it is about what you should do today to ensure an easy adjustment to the corporate tax . One thing that should be at the top of your list is to have the correct business management software, not just for corporation tax purposes, but also to operate your firm more efficiently than previously.