Corporate Tax in the UAE

In a groundbreaking move, the UAE government conducted a new era by announcing the implementation of corporate taxation starting June 1, 2023. At Dhanguard, we're poised to navigate this transition seamlessly. Why Choose Us:

  • Navigate Complexity

  • Tailored Services

  • Enhanced Compliance

  • Trusted Partner

Choose Dhanguard for precise, reliable, and efficient corporate tax filing. Let's shape your success story together in the UAE's new tax model

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The government of the United Arab Emirates declared on January 31, 2022, that a new corporate income tax would be implemented. Historically, the United Arab Emirates has not taxed corporate profits except for small businesses like international banks and resource extraction. Only some firms in the UAE will be impacted by the new corporation tax, and many will be exempt from paying it altogether. However, many businesses operating in the territory will have to start paying the new 9% corporation income  tax rate as of the fiscal year that begins on June 1, 2023. Let's discuss the new corporate tax in the UAE and what it implies for you.

What is Corporate Tax?

A corporate tax is a direct tax imposed on the capital or income of corporations and other comparable legal entities. It is also referred to as a business tax or corporation tax. The tax is usually imposed at the national level but may also be imposed at state or local levels in some countries. The UAE's historical stance of a 0% corporate income tax rate uniquely positioned it among global economies. The introduction of the 9% standard rate marks a significant departure from this long-standing policy, signalling a shift towards a more diversified fiscal approach.

The Corporate Tax History of the UAE

The United Arab Emirates was an extremely low-tax jurisdiction for a long time. Most corporations have never been required to pay corporate taxes, and citizens do not pay taxes on their income. Most of the state's income came from the nationalized and private fossil fuel extraction sectors, subject to a revenue tax of about 50%. Foreign banks have long paid a 20% corporation tax on operating income, and hotels and restaurants in Dubai also have to pay certain taxes. Nonetheless, the United Arab Emirates has been attempting to diversify its economy and move away from fossil fuels in recent years. This indicates that an increasing proportion of enterprises do not pay taxes. Given the rapidly expanding economy and reduced potential revenue from fossil fuels, it makes sense for the government to tax corporate gains further to fund infrastructure, healthcare, and education projects.

In 2018, the United Arab Emirates implemented a Value Added Tax (VAT) that levied a 5% fee on all consumer purchases. Subsequently, the administration declared in January 2022 that a 9% company tax would be implemented the following year.

The 9% tax on corporate profits in the United Arab Emirates is still far less than the average tax of most other developed nations, which is often 20%. The majority of other advanced economies across the world also levy taxes on business earnings. Additionally, the new corporate tax in the UAE will deter international companies from utilizing the nation as a base to evade paying taxes in their home nations.

New Corporate Income Tax System in the UAE

Implementation of Corporate Income Tax 

The Ministry of Finance introduced a new corporate income tax system, bringing about substantial changes. 

According to the Ministry of Finance, corporate tax rates are:

  • 0% for taxable income up to AED 375,000 

  • 9% for gross income over AED 375,000 

Companies that make less than this will still have no taxes to pay.

The United Arab Emirates has declared that, in compliance with the Global Minimum Corporate Tax Rate agreement, major multinational companies with income over EUR 750 million will also be required to pay a 15% tax in addition to corporate tax.

Most businesses must set aside funds to pay their taxes as of June 1, 2023, when the new UAE corporation tax takes effect. Companies with January-starting tax years will not be required to begin paying taxes on sales made before January 1, 2024. 

Characteristics of the Corporate Tax System

Dubai's business tax regime includes various laws, such as corporate taxes, VAT systems, tax-free zones, and the lack of federal income tax. Discover essential aspects of the tax system by reading on:

Who is subject to taxes?

Tax will be imposed on legal entities with illustrious personalities, such as LLCs, PSCs, PJSCs, and LLPs. Furthermore, any foreign legal entity that resides in the United Arab Emirates and generates money will be subject to charges. While corporations operating in free zones will pay no corporate taxes as long as they adhere to all regulations, this also applies to free zone businesses that transact business with the mainland. Corporate taxation laws may also apply to UAE citizens and non-residents.

Taxation Rates

The 0% rate will apply to all taxable profits under AED 375,000 per year. A 9% rate will be applied to all taxable profits over AED 375,000 per year. Additionally, more giant international corporations with differing business conditions will be subject to a different tax rate.

Who is Not Eligible ?

A participation exemption from corporate tax is provided by corporate tax legislation when dividends are received, or shares of a subsidiary firm are sold. Moreover, corporations owned by the government, charitable organizations, public benefit organizations, investment funds, and firms involved in extracting minerals and oil are not subject to corporate taxes.

How to compute taxable income

Typically, the tax rate and income are ascertained using the account net profit or loss displayed in the business's financial statements. If the company experiences a loss, it may deduct up to 75% of the value from its taxable income in subsequent years.

Impact on Businesses

This change necessitates a reevaluation of tax strategies and financial planning for companies operating in the UAE. Understanding the implications of this standard corporate income tax rate is crucial for businesses to adapt and ensure compliance with the revised tax regulations.

Freezone Corporate Tax Guide

While the new corporate income tax in the UAE  is set to apply across the nation, specific details regarding its application within free zones are of paramount importance. Free zones traditionally offered exemptions or reduced tax rates, and understanding how these changes impact entities in these zones is crucial for businesses availing such benefits.

Will Businesses Operating in Free Zones Pay Taxes?

The government has announced that enterprises operating in free zones will continue to enjoy the benefits of the pre-agreed incentives relevant to their free zone. Free zones may elect to alter the regulations in the future and even impose a levy. Free zone corporations are typically required to pay corporate tax on the revenues they generate from doing business with mainland enterprises. Free zone businesses won't have to pay taxes, but they will still need to register and file a corporation tax report.

Insights on Dubai Corporate Taxes

The implications of Dubai's updated corporate tax structure on an individual's personal earnings and dividend payouts are outlined as follows: 

Will Dubai Impose Taxes on Personal Income?

No, there aren't any plans to tax personal income in Dubai or other UAE cities now. The 5% VAT tax imposed on all consumer goods and services is the only type of individual income tax in Dubai.

Will Dividends in Dubai be Subject to a Capital Gains Tax?

No, there aren't any present intentions to impose a capital gains tax on dividends obtained in Dubai or the United Arab Emirates. Investors and business owners are exempt from capital gains tax on dividends received from their investments in companies.

Corporate Tax's Effect on the Business Environment in the UAE

The business environment in Dubai and the United Arab Emirates is anticipated to be significantly impacted by the implementation of corporate tax. It is expected to:

Attract Capital From Other Countries.

Foreign companies are expected to invest in the UAE due to its transparent tax system and corporate tax rate. 

A Rise in Competition

The UAE's Corporate Tax system is intended to improve the nation's competitiveness in the international market by aligning with best practices worldwide. 

Encourage a Diversified Economy.

It is anticipated that implementing Corporate Tax will stimulate companies to expand into new markets and diversify their activities, thereby bolstering the economic expansion and advancement of the United Arab Emirates.

Seek Expert Tax Guidance from Dhanguard

Corporate tax services have become instrumental in guiding businesses through this transition in light of the new regulations. Expert advice on compliance, strategic tax planning, and optimization of tax structures is now more critical than ever for businesses in the UAE. The UAE's introduction of a corporate income tax system heralds a new chapter in its fiscal policies. This evolution emphasizes the need for businesses to proactively engage with tax experts, reassess their financial strategies, and ensure compliance with the updated regulations. Furthermore, keeping up with the most recent changes to the UAE tax code is critical since the government may modify or add new laws to improve the system. As a result, the services offered by our professionals at Dhanguard are tailored especially to meet your financial demands. Dhanguard ensures seamless corporate tax compliance in Dubai, alleviating your burdens. Trust us to navigate the complexities and keep your business tax-ready.

Frequently Asked Questions

The UAE introduced a 9% corporate tax on businesses' profits starting from June 1, 2023, impacting firms earning over roughly USD 100,000 annually.

Companies making more than 375,000 AED (around USD 100,000) in profits are subject to the 9% tax, while those earning less remain exempt.

Certain entities like government-owned corporations, charitable organizations, public benefit firms, and those in oil extraction industries are exempt.

Generally, businesses in free zones will only pay corporate taxes if they engage in transactions with mainland companies. They need to register and file tax reports but usually enjoy exemptions.

Dividends received by investors and business owners from their company investments aren't currently subjected to capital gains tax in Dubai or the UAE.

The tax aims to attract foreign investment, enhance competitiveness, and encourage a more diversified economy in the UAE.