The United Arab Emirates implemented taxes such as Corporate Tax, Value Added Tax (VAT) to diversify sources of revenue so that government departments can continue to deliver excellent public services and ensure a high quality of life for coming generations.
Let’s understand the taxes in the UAE starting with their definitions first:
What is UAE Corporate Tax Law?
Corporate Tax is a Direct Tax which is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.
The UAE Government implemented a Corporate Tax on 1st June 2023 which is imposed on the taxable income. The government issued a tax of 9% on taxable income (net profit) that exceeds more than AED 375,000 annually (Subject to Terms & Conditions).
What is Value Added Tax (VAT) Law?
The United Arab Emirates Introduced VAT on 1st January 2018, which is imposed at a rate of 5% at each stage from production to distribution of supplies on goods and services. It is an Indirect Tax; occasionally, it might be referred to as a type of general consumption tax.
Overview of these taxes:
Corporate Tax is 9% on taxable income more than AED 375,000 annually. Corporate Tax is 15% for the MNC group company with a global turnover of more than 750 million euros (3.15 billion UAE Dirham) which is imposed in 2025.
For a Qualifying Free Zone Person, CP Tax is 0% on Qualifying Income and imposed 9% > AED 375,000 on Taxable Income that is not Qualifying Income under Article 18 of Decree Law No (47)
Basically, Corporate Tax is applicable for:
• Resident Companies incorporated in UAE and other legal entities like Limited Liability Companies (LLCs), joint-stock companies and others.
• Branches of Foreign Companies.
• Natural Person Conducting Business in UAE.
• Multinational Companies.
Key Considerations:
• Determining the Taxable Income.
• To avail Corporate Tax Exemptions under Small Business Relief for small businesses.
• To get Corporate Tax Exemptions for a Qualifying Free Zone Person for specific income categories.
• Access of benefits under Group Tax Relief.
• To adhere to the Arm’s Length Principle and Non-Arm’s Length Expenditure.
• To comply with Transfer Pricing regulations.
• To assess and validate Tax Losses – determining whether to transfer, carry forward or set off.
Who are exempted from Corporate Tax? (Also known as Exempt Persons)
Automatically Exempt Persons
• Government Entity (Except when engaged in business activity).
• Government Controlled Entity (Mandate business activity).
• Extractive Resources Business.
• Businesses in related non – extractive natural resource activities.
Exempt Persons subject to Approval
• Qualifying Public Benefit Entity
• Qualifying Investment Funds
• Public and regulated private social security and retirement pension funds.
• Any other persons as per cabinet decision.
How is a Taxable Income calculated?
Taxable Income is calculated by taking the accounting income (profit or loss) before tax as per financial statement as base or starting point and the adjustments, as provided in the CT law, to be made to the accounting income (profit or loss) in order to get the taxable income.
Value Added Tax (VAT) is 5% on taxable supplies of goods and services mentioned under Article 2 of the Federal Decree-Law No. 8 of 2017. This means that the end consumer is directly paying the VAT charges to the government.
What are the Criteria for registration?
All businesses whose taxable supplies for the past 12 months exceed AED 375,000 or any company expects to exceed a threshold in the next 30 days, VAT registration is mandatory.
Also, business in UAE can voluntarily register if their total value of taxable supplies and imports in a year exceeds
AED 187,500.
VAT is applicable to all businesses or a natural person that supply goods and services to consumers (residents, tourists).
Key Considerations:
• Standard Rated Supplies – 5% VAT will be charged to goods and services.
• Zero-Rated Supplies – 0% VAT. Still, business can deduct input tax on goods and services.
• Exempt Supplies – Supply of goods or services upon which neither VAT at standard rate nor zero rate is chargeable. Example- healthcare, transportation, etc.
• Deemed Supplies – Supplies that are taken out of business in either standard or zero rate for private use or any benefit provided to employees like bonus, gifts.
• Out of Scope Supplies – supplies that are exchanged between an overseas supplier and an overseas buyer. (outside UAE tax regulations)
[Taxable Supplies - supply of goods or services for a consideration by a person conducting business in the State, and does not include exempt supply (Under Article 1 of VAT Law)]
What essential financial documents/records do you need to maintain for VAT & CORPORATE TAX registration/filing?
- General comprehensive financial documents of last 5 years
Why choose us?
Choosing a reputable consulting firms like ALM Tax Consultant not only specialize in reviewing your financial records but also ensure compliance with UAE tax regulations along with Corporate Tax and VAT registration and filing. This expert guidance helps you avoid potential penalties associated with non-compliance. For further assistance, kindly Connect with us.
