Dubai has always been a member at the forefront of the global economy. In January 2022, the Ministry of Finance launched a new corporate income tax in Dubai for the first time. It is mandatory for all the companies who are operating within the Emirate to pay corporate tax. While this tax may be slightly lower than those in other countries, there can be major added advantages for the companies.
What Is Corporate Tax?
Corporate tax is a form of tax levied on the profits of companies or organizations. This tax is to be paid according to the law of the state as defined in an organization’s income statement for an accounting period.
The effect of corporate income tax is derived from the fact that every company which is registered in Dubai must pay tax. This tax is for the broader purpose of revenue generation and also serves to reflect the levels of economic activity within a country. This tax is payable to the companies who engage in business or trade in Dubai.
Applicability of Corporate Tax
Corporate tax is applied to the following Taxable persons:
- Juridical persons or companies that are managed and controlled in the UAE.
- Non-juridical persons can file for corporate tax if they are trading in the emirate of Dubai within a certain period of time.
- Resident persons who have received income or gains from a business that is managed and controlled outside the UAE.
- Non-resident persons who have received income from Dubai through real estate investment companies and other investment companies that are registered in the jurisdiction of Dubai.
However, juridical persons established in the free zone are not required to pay the corporate tax that meets Qualifying income conditions.
Corporate Tax Rate:
Dubai corporate income tax payable by the companies registered in Dubai is subjected to pay corporate tax at a flat rate of 9%. This tax is paid for the financial year.
The corporate Tax rate is applicable to income exceeding AED 375,000. However, less income is tax-free. Similarly, the corporate tax rate is the same for the qualifying income of free zone persons.
However, the corporate tax rate shall not apply to any company that is incorporated for charitable or other specified nonprofit purposes.
Calculation of Taxes
Financial statements are issued by companies on an annual basis. They include income and expenses. Then the total of all expenses and income will be determined and then taxes or fees are deducted as applicable.
Here is how you can calculate corporate tax in UAE easily.
Therefore tax for the year is calculated and those taxes are paid out of the total tax payable according to the law of the place where they have been operating.
Corporate Tax For Group Of Companies (Subsidiaries):
Companies with their subsidiaries can register themselves as a single entity. In this case, the parent company and its subsidiaries are treated as a single taxable entity and known as a “Tax Group”. This is applicable if both companies are registered in Dubai or outside Dubai. However, the parent company must own:
- 95% capital share of the subsidiary
- 95% voting share of the subsidiary
- 95% share of distributable profits
Objectives Of Corporate Tax:
Corporate Income Tax is also known as a tax on economic activity. It serves to reflect the levels of economic activity within a country. The main aims of this tax in the UAE are:
- The objective is to bring about uniformity in the taxation system.
- Also, it aims to generate an adequate amount of revenue for various public sectors through taxes.
- The government reaffirms its commitment to complying with international tax transparency standards.
- This tax also serves as a source for government coffers’ taxation.
- Last but not least it aims to bring transparency and encourage economic growth.
Corporate tax is an important source of income for the government. It serves to reflect the levels of economic activity within a country. It is also a requirement for all companies operating within the Emirate. The corporate income tax rate in the UAE is 9%. This tax is paid once in a year according to the rules defined by the state.
The corporate income tax in the UAE has been implemented with great care and this will help in boosting trade in Dubai. It helps to develop a level playing field for all businesses irrespective of their size. This will improve the reputation of the country as a global business hub and will bring about many benefits to both the business community and the government.