Corporate Tax, which is commonly known as CT, is levied on the company profits and is a hot debate topic among policymakers, economists and the founders and entrepreneurs. The Ministry of Finance introduced the federal Corporate Tax on business net profits on 1 June 2023 for the UAE region. It was first announced by MoF on 31 January 2022.
Several businesses see it as a burden on their net income. However, others find it a much-needed policy change for the benefit of the country. If you, too, want to learn more about the Corporate Tax in UAE, you are at the right place. Before we delve into the leading advantages of the Corporate Tax UAE, let’s understand the rates and nuances of this new tax.
Existing Rates of the Corporate Tax in Dubai, UAE
As per the policy regulations stated by the UAE’s Ministry of Finance, here are the latest rates for the Corporate Tax.
There are different types of loans, including working capital loan, POS Loan, Express loan, Inventory loan and Equipment business loan in UAE.
Working Capital Loan
Taxable Income | Corporate Income Tax Rate |
Up to AED 375,000 | 0% (No Corporate Income Tax) |
Exceeding AED 375,000 | 9% |
Large companies meeting OECD criteria* | Separate tax rate applicable |
Important Note: *In this, large companies or MNEs, refer to those that fall under the criteria under Pillar Two of the OECD (Organisation for Economic Co-operation and Development) Base Erosion & Profit-Sharing Project. For instance, companies that have a global revenue of more than 750 million or AED 3.15 billion.
Express LoanTax Free Entities in the UAE's Corporate Tax System
Yes, you read it right.
A few entities are straightaway exempted from paying the Corporate Tax in UAE. This consists of 3 types of entities stated below:
- Specific categories of Investment funds
- NPOs or Non-Profit Organisations, provided they meet certain criteria and conditions
- Entities wholly owned by the government sector
The following important question that arises is–which entities need to pay the CT in UAE.
Tax Paying Entities in the UAE's Corporate Tax System
The UAE’s corporate federal tax implemented in Dubai applies to all commercial activities and businesses operating in the existing seven emirates.
Below are the two types of entities to which the CT does not apply:
- Businesses performing services that involve the extraction of natural resources
- Individuals who earn personal income, including investment returns or monthly salary income, are exempt from paying the CT until their revenue is generated from activities that don’t need the commercial activity licence.
- Companies that are registered in the FTZs or Free Trade Zones and comply with all regulatory compliances are excluded from paying the Corporate Tax. This exclusion is applicable as long as it is not a Dubai mainland company setup.
How is the Taxable Income Calculated for CT in Dubai
This is a commonly asked question of most businesses and founders operating in the UAE and eligible for corporate tax payment. Your taxable income is calculated after reducing the allowable exemptions and expenses of the business’s gross profits. Interests paid on loans, asset depreciation, and operating expenditures are some of the expenses you can deduct from the business’s gross income.
In addition to the above, here is a list-view of all types of incomes that are exempted from the Corporate Tax:
- Profits generated from the Intra-group proceedings
- Net revenue generated from the reorganisation of groups
- Capital gains
- Dividend income received from a United Arab Emirates company via its shares held by the business
For more insetup, you can consult AB Capital Services which will effectively guide you through the intricacies of the Corporate Tax applicable in Dubai and help pay your taxes.
Top 5 Benefits of the Corporate Tax in UAE
Coming to the most essential part – how is paying the corporate tax beneficial in 2024 and beyond.
Trade and Working Capital Finance Solutions
- Tax Fairness: Corporate tax helps companies pay a fair portion of their taxes. Since it is calculated on the taxable income of businesses and corporations, it highlights a fair distribution of the geography’s tax burden.
- Less Invasive: Compared to the personal income tax, corporate tax is more stable and effective. Moreover, keeping a tab on the corporate tax is simpler for setup in UAE. This is because your tax consultant does not need to check the income of multiple households or individuals.
- Economic Growth and Diversity: The corporate tax is a great mechanism to shield domestic industries from competing with foreign businesses. On the other hand, it encourages local businesses in the UAE through additional incentives given to them.
- Relief to Small Businesses: For small businesses set up in UAE, the introduction of Corporate Tax is no less than a golden light. Firms with a revenue of less than AED 3 million in a year can decide to declare no taxable income. This is applicable for the period 1 June 2023 to 31 December 2026.
- Enhanced Global Credibility: The implementation of the CT in the UAE, in addition to the international tax regulations, has helped boost the country’s reputation as transparent and regulation-compliant. As a result, this further attracts more foreign companies to expand in the UAE and improves international business networks and relations.
Eligibility to Apply for a Business Finance
In a nutshell, the introduction of the Corporate Tax in the Dubai, UAE is a great regulation for businesses and helps strengthen the country’s economic foundation and establishes a more sustainable foundation for its tax regime and growth.
Managing the CT calculation and payment can be challenging for businesses. However, you can rely on AB Capital’s business consultancy services. It is well known for its technical financial expertise and industry acumen, enabling businesses to drive their growth to new heights.
Whether you need assistance with tax planning or a setup in Dubai, we are there for you. Book a free consultation with the best business consultants in Dubai.
