Corporate Tax In UAE: Its Meaning, Applicability, Exclusions & Rates

showing corporate tax in uae landscape

Dubai has always been a member at the forefront of the global economy. Recently, the UAE authorities announced the implementation of corporate tax on June 1, 2023. This law states that a taxable business or individual will be imposed with a 9% corporate tax from the onset of their first financial year, starting on or after June 1, 2023.

This brand-new policy created a buzz among tax professionals and companies. The UAE is now the 4th nation among the GCC countries to implement the federal corporate tax.

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 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.

Objectives Of Corporate Taxation In UAE:

Corporate 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. 

Applicability of Corporate Tax:

Corporate tax is applied to the following Taxable persons:

  1. Juridical persons or companies that are managed and controlled in the UAE.
  2. Non-juridical persons can file for corporate tax if they are trading in the emirate of Dubai within a certain period of time.
  3. Resident persons who have received income or gains from a business that is managed and controlled outside the UAE. 
  4. 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 Rates In UAE:

The companies registered in Dubai are 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 Corporate Tax:

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

Incomes and Businesses Excluded From Corporate Tax:

As per the profit threshold of AED 3,75,000, any company that generates more profit will have to pay corporate tax. But specific categories of income or business are excluded from this rate. Here is a list of businesses or incomes that will not pay the corporate tax:

  • Not applicable to qualifying restructurings or intragroup transactions.
  • People are not subject to the tax. Resultantly, any income from investment in shares, real estate, employment, or any other personal income not related to Emirati business or trade will be excluded from the tax.
  • Dividends and capital gains gained from the UAE companies from the qualifying shareholdings are excluded from the tax.
  • Corporate tax is not applicable to international investors who do not operate a UAE business. 
  • Corporate tax incentives are presently being given to free zone companies that follow all regulatory requirements.

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