The implementation of corporate tax in the United Arab Emirates has puzzled many companies. This applies to both small enterprises and large firms. Everyone must pay attention to the new tax system, as failing to comply with the tax regulations will lead to severe penalties and losses.
This manual will cover all you require to know regarding corporate tax UAE, so that you are well-prepared to ready your enterprise for the adjustments.
1. Corporate Tax in UAE is Priced at 9%
One of the key facts about corporate tax in the UAE is that it is a flat rate of 9%. This is applicable to businesses with more than AED 375,000 in annual revenues. Firms with revenues of below this figure are exempt from corporate tax.
The rate of 9% is among the lowest corporate tax rates in the world, which makes the UAE a friendly place for businesses.
2. Not All Companies Are Required to Pay Corporate Tax
Corporate tax UAE is not levied on all companies. There are some exemptions, such as:
- Companies with annual revenues of less than AED 375,000
- Free zone companies that meet certain conditions
- Government departments and government-controlled entities
- Companies involved in natural resource extraction (these are taxed separately)
If your company belongs to any of these groups, you might be exempt from corporate tax.
3. Free Zone Businesses Can Continue Enjoying Tax Breaks
Free zone businesses in UAE have long enjoyed exemption from taxation. With the new corporate tax law, free zone businesses can still enjoy 0% corporate tax if they have strict conditions that they must comply with. These include not dealing with mainland UAE companies and adhering to supervisory procedures.
It is important that free zone companies verify their entitlement to ongoing tax relief to prevent being hit with unplanned tax bills.
4. Corporate Tax is Distinct from VAT
The UAE implemented Value Added Tax (VAT) in 2018, and most businesses think corporate tax is the same. VAT and corporate tax are entirely different, however.
- VAT is a tax on the sale of goods and services, at 5% currently.
- Corporate tax is a tax on business profits.
Companies have to ensure that they are in compliance with both VAT and corporate tax where it applies.
5. There Are Special Filing and Compliance Requirements
To be in compliance with corporate tax UAE rules, companies have to:
- Register for corporate tax with the Federal Tax Authority (FTA)
- Have proper bookkeeping records
- Submit annual corporate tax returns within the required deadlines
- Pay taxes payable on time to prevent penalties
Companies that fail to meet these obligations may face fines or legal consequences.
6. Small Business Relief Comes to the Aid of Businesses
Relief aid programs have been availed for small enterprises making less than AED 3 million a year in the UAE. These businesses may benefit from being considered as non taxable entities for tax purposes which translates into lower corporate tax expense.
This regulatory action seeks to create a favorable tax climate for new entrants in the business and small enterprises to enable them to grow with minimal tax pressure.
7. Transfer pricing regulations for corporate tax in the UAE
According to transfer pricing policies, transactions between two related companies are required to be executed at arm’s length. Multi-firm entities require these within entity pricing on their documentation to prove that they meet international taxation requirements.
Not complying with transfer pricing rules may result in extra tax payments and fines.
8. Additional Tax Liabilities Could Be Imposed On Multinational Corporations
Multinational firms with operations in the UAE should note the international tax treaties, specifically the OECD’s minimum tax of 15%. Some multinationals based in the UAE may become liable to foreign taxes in addition to the corporate tax of 9%.
If your company has international operations, it is important to get the advice of a tax specialist.
9. Non-Compliance Grievances And Fines Will Be Applied
There are systems put in place by the UAE government to monitor compliance with corporate tax laws. The Federal Tax Authority (FTA) has the right to perform tax audits, and all entities that neglect paying taxes will face penalties.
Common causes of penalties are:
- Late filing of taxes
- Error in tax reporting
- Not keeping proper books of accounts
To avoid penalties, organizations should ensure that they comply with tax regulations correctly and adhere to all deadlines.
10. Seeking Expert Tax Consultation is Advised for Organizations
The corporate tax in UAE is new, and entrepreneurs would benefit from consulting a financial planner or tax advisor as rules and regulations may change frequently. Having a professional stay on top of regulations may allow business to receive any available tax relief.
Tax experts can help enterprises accurately deal with the ever changing legislation to avoid facing heavy penalties while maximizing their tax planning initiatives.
Closing Remarks
It is important for those doing business in the UAE to educate themselves on the Operators Permit Taxation in advance. With the new changes comes a business tax set at 9%, smaller businesses, and strict compliance measures, will be left trying to adapt to the new laws set in place.
With the proper guidance, these hurdles can be tackled effortlessly allowing companies to thrive in the their growing economy.