The federal tax on corporations and business profits will come into effect for the new financial year commencing on or after June 1, 2023.
It would be mandatory for the companies to register for tax registration, as the UAE declared last year that it would impose a nine percent corporate tax on companies with a profit of Dh375,000 and above. Besides, the corporate tax of ten UAE will be the lowest in the world.
Below is a complete detail that individuals and companies need to know about the tax. Though some laws will need further explanation and clarification, it is a dire need to consult experts on these topics.
What is corporate tax?
Sometimes referred to as a corporate income tax or business profit tax, this is a direct tax imposed on the net income of corporations and other businesses.
What is the corporate tax rate?
Tac will be imposed at a headline rate of 9 percent in taxable income exceeding Dh375,000.
Is the 9% corporate tax high?
No, it is the lowest rate in the world. Some countries have imposed around 30 percent corporate tax.
Why is corporate tax being imposed?
Corporate tax is being imposed to speed up the development and transformation of the country. The competitive corporate tax will adhere to international standards, along with the extensive network of double tax treaties of the UAE, which will cement the position of the UAE as a leading jurisdiction for business and investment.
Who is subjected to corporate tax?
This tax applies to ” Taxable Persons,” namely:
1. UAE Companies and other juridical persons incorporated or effectively managed are controlled in the UAE.
2. Individuals who direct a business or business activity in the UAE as specified in a Cabinet Decision, and
3. Non-resident juridical persons ( foreign legal entities) that have a permanent establishment in the UAE.
Who is exempted from the corporate tax?
Under the Ministry of Finance’s directive, many entities are exempted from the corporate tax: Some are listed below.
- Government and government-controlled entities
- Quality public benefit entities.
- Private or public pension and social security funds
- Personal income earned from employment
- Salary
- Residential rental income or real estate
And investment income and investment income from bonds, shares, and other securities are not taxable.
Freelancers’ income up to Dh1 million is exempted.
What expenses are deducted from corporate tax?
All legitimate business expenses incurred wholly and exclusively to derive taxable income will be deducted. However, the deduction timing may differ for different costs and accounting methods.
Will the withholding tax rate apply to the UAE-sourced income?
A zero percent withholding tax may apply to specific types of UAE sources of income paid to non-residents.
How about the tax group?
Two or more taxable persons who meet certain conditions can apply to form a “tax group” and be treated as a single taxable person for corporate tax purposes.
How to calculate the taxable income of a tax group?
To determine the taxable income of a tax group, the parent company must prepare consolidated financial accounts covering each subsidiary that is a member of the tax group for the relevant tax period. Transactions between the group members would be eradicated to calculate the group’s taxable income.
When to register, file and pay corporate tax?
All taxable persons( including free zone persons) must be registered for corporate tax and maintain a registration number. Moreover, taxable persons are required to file a tax return for each period within 9 months from the end of the relevant period.
