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Corporate tax in the UAE – who to pay and how much?

Корпоративный налог в ОАЭ с 2023 года – кому платить и сколько?

Almost all entrepreneurs have heard about doing business in the Emirates and consider this country to be the best in terms of tax legislation. Since last year, serious changes in the usual course of things have loomed on the horizon. Previously, corporate tax in the UAE was optional, but since June last year, the government has required companies to register with the tax authority. Let’s analyze the tax conditions in detail and answer the question: «Is it so profitable to do business in the Emirates?».

What is Corporate Tax (CT)?

Corporate tax is imposed on the net profit of the company. It is regulated by Federal Decree-Law No. 60 of 2023 on amendments to the provisions of Federal Law No. 47 of 2022 on taxation of companies. Prior to the adoption of this decree, only branches of foreign banks were subject to income tax in the amount of 20%. For them, this bet has remained. Also, a progressive scale of taxation up to 55% has been established for oil and gas producers and enterprises.

What is the purpose of the corporate tax?

Organizations of medium and large importance from June 1, 2023 (some from January 1, 2024) were obliged to pay 9% of profits to the treasury. The Emirates took this step in pursuit of several important goals, namely:

  • to gain a foothold in the market as an advanced global business and investment hub; 
  • to increase the pace of development of the domestic economy and achieve strategic goals; 
  • to emphasize his position as an advocate of transparency in tax relations.

All entrepreneurs are required to register, regardless of where their business is located, on the mainland or in the Frison.  

Who is required to pay corporate tax?

Who is required to pay corporate tax?

Corporate tax in Dubai has some reservations. So, for example, if the company’s profit does not exceed 375 thousand dirhams, then the tax rate will be 0%. Income above this amount will be taxed at a rate of 9%. Despite the discontent of many entrepreneurs who have been working in the Arab state for a long time, even after the introduction of this rate, the tax climate here still remains the most favorable in the world. 

If we look at it in more detail, the KN will be applicable to the following categories:

  • enterprises and individuals operating on the basis of an appropriate license; 
  • companies from the Frison with the preservation of the remaining tax preferences due by law; 
  • foreign entrepreneurs doing business in the country regularly or permanently; 
  • financial organizations that carry out banking operations and other related activities; 
  • enterprises in the field of real estate, construction, development, agency and brokerage activities.

Corporate tax for companies registered in the frisons 

Regarding free zones, there are some reservations for businesses. They are worth considering in more detail. It is accepted that free zones have their own rules on taxation, and in particular they attract precisely by the absence of taxes. The new law resonates with the very idea of frison, but it is impossible to completely rid the partners of the NW of the tax, leaving it in the mainstream. Such a format will jeopardize the reputation of the Emirates as a fighter for the purity of financial relations. 

Ultimately, the zero rate remained formally for companies that meet the requirements of the Qualifying Free Zone Person (QFZP) or qualified companies. They remain at the 0% rate if the income earned is related to qualifications. Other profits are taxed at a ten percent rate.

To get the QFZP status, you need to:

  • to receive the main amount of profit in the qualification direction; 
  • have enough assets to operate; 
  • the presence of a sufficient number of employees in the staff; 
  • have an adequate amount of operating expenses;
  • profit from qualified activities; 
  • receive profits from third-party sources in the amount of no more than 5% of the total volume or no more than 5 million dirhams per year; 
  • conduct business in accordance with the established pricing rules; 
  • report to the tax authorities.

Non-compliance with even one point obliges the partner of the frison to pay the established amount of the fee to the treasury. 

What does «Sufficient quantity» and «adequate volume» mean?

Entrepreneur in the UAE

These amazing formulations can stupefy an inexperienced entrepreneur. Even the experienced ones don’t know exactly what they mean. The UAE Ministry of Finance does not know this either. It is also unknown how companies will be evaluated for compliance with these criteria. There have been no official statements on these issues from the competent authorities, so entrepreneurs can rely on common sense and logic until the situation changes. 

Exceptions to CT

However, entrepreneurs are not obligated to pay the corporate tax introduced in the UAE from 2023 on every profit received. An exemption can be obtained in the following cases:

  • if the company’s activities are related to the extraction of natural resources, since their activities are subject to corporate taxation at the Emirate level; 
  • in case of profit from qualified blocks of shares; 
  • income received from intra-group transactions and reorganizations, provided they are carried out in strict accordance with the requirements.

Also, the tax does not apply to:

  • interest on bank deposits and savings; 
  • individual wages; 
  • income of a foreign investor; 
  • personal income of individuals from real estate investments; 
  • income of individuals from shares.

What kind of accounting should be conducted in accordance with the new requirements

Maintaining appropriate accounting and financial statements is a prerequisite in accordance with IFRS and, accordingly, the UAE Ministry of Finance. All papers confirming transactions and financial receipts to the company’s accounts must be in order. Otherwise, the requirements at this stage have not changed much and still maintain the level to which business owners in the FEZ have already become accustomed. 

How will the state control the business

How will the state control the business

To monitor the implementation of the new resolution, the tax authorities are authorized to audit any enterprise. In which case, the entrepreneur is notified 5 days before the actual inspection, and this excludes the possibility of correcting the situation at the very last moment. 

The events are held at the place of actual business of the company. At this time, the tax authorities must provide all accounting documents, as well as confirmation of the legal presence of employees in the country and at their workplaces. In case of disputes, an additional check may be assigned. 

It is best to strictly monitor compliance with all aspects in advance, for example:

  • corporate reporting; 
  • tax resident status; 
  • staff; 
  • enterprise communication; 
  • physical office; 
  • business control center.

All these and other aspects must be worked out. The entrepreneur needs to make sure in advance that there are no gaps in these areas. If a check is scheduled, there will be no time left to fix the flaws. 

What happens if you don’t keep the books or do it wrong

In any country, nothing good awaits a person who violates tax laws. You can easily get fined several thousand dirhams if an intentional or accidental mistake is discovered and this is not even the worst scenario. The new corporate tax in the UAE is now confusing the cards for many entrepreneurs. After all, after several years of working in the same format, they will have to build their business on a completely different principle.

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Vladimir Sviridov
Vladimir Sviridov
General Manager RLC Consulting
With a Postgraduate Masters in Finance from The, Moscow State University, Russia. Vladimir started his professional career as an auditor of the financial sector of EY. After that, he worked for several years in senior positions in corporate banking. In 2018-2021, he managed the finances of a large agricultural holding, and is currently responsible for strategic planning, corporate partnership and financial management in the role of General Manager of RLC Consulting GROUP in the UAE.

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