Several businesses throughout the Emirates have and still enjoy no income tax being levied from their profits. However, the present tax scenario is all set to change completely and this privilege will soon conclude as the Ministry of Finance announced on 31 January 2022 that a federal Corporate Income Tax system will be introduced in UAE.
Corporate Income Tax is a relatively new concept in UAE, which therefore makes it very important for businesses to completely comprehend the idea. Therefore, we Maats Accountants and consultants have put together all of the essential things you should understand about the UAE Corporate Tax:
What is Corporate Tax?
Corporate Tax, also officially known as “Business Profits Tax” or “Company Tax” is a direct tax imposed on the net income or profit of corporations and other businesses.
Who all should pay for it?
All the businesses and corporations in UAE, whose total comprehensive income (net profit) is more than 375,000 AED fall under the extent of corporate tax and are therefore required to pay a percentage calculated from their total income as corporate tax.
Why is Corporate Tax being introduced?
By putting into effect a new system of Corporate Tax, UAE aims to:
- Transform the Emirates into a leading global hub for future business and investments.
- Stimulate the progress and transformation of Emirates to attain its crucial objectives.
- Acknowledge Emirate’s commitment to meeting the international standards for tax transparency and preventing harmful tax practices.
When UAE corporate tax will it be in place?
The UAE Corporate Tax will be effective from the next financial year starting on or after June 1, 2023.
This qualifies the business that has their financial year beginning on July 1, 2023, and ending on 30 June 30, 2024, to be conditioned to pay UAE Corporate Tax from July 1, 2023 (The beginning of their first financial year).
Whereas, the business that observes a calendar year; will have its financial year starting on 1 January 2023 and ending on 31 December 2023 which will make them conditioned to the Corporate Tax from 1 January 2024.
Who will be the controlling authority of the UAE Corporate Tax system?
The Federal Tax Authority (FTA) set up in 2016 by the Ministry of Finance will be the government body with the responsibility for the collection, administration, and enforcement of the corporate tax regime in the UAE. However, the Ministry of Finance shall remain the competent authority for certain purposes such as international tax agreements, treaties, and the tax-related exchange of information.
How does the Corporate Tax apply?
Once in effect, the UAE corporate tax will be levied on all business and commercial activities in the emirates, except for the commercial activity of extraction of natural resources (continued to be taxed following the specific Emirate taxation).
Corporate Tax will concern the “taxable income” which constitutes the accounting net profit of a particular business in the Emirate, after adjusting certain items (deductibles), as specified under the UAE corporate tax law.
How is the Corporate Tax in UAE calculated?
Corporate tax in UAE is to be calculated at 9% of the total comprehensive income shown in the company’s financial statements. 9% for taxable income above AED 375,000; and a different tax rate for large multinationals that meet specific criteria (set with reference to certain projects).
For deriving the exact taxable net profit for businesses as Corporate Tax in UAE, we might be required to wait until further guidelines from The Federal Tax Authority and The Ministry of Finance are released.
What are the exemptions provided under the UAE Corporate Tax regime:
- Individual salaries and income of both public and private sector workers.
- Investments made by individuals in real estate
- Capital gains and dividends earned from particular investments
With the new Corporate Tax system and subsequent regulations to be implemented in UAE, things could get complicated for you if you have any business in the Emirates.
Don’t worry; Maats Accountants and consultants, a UAE-registered accounting firm that offers a wide spectrum of accounting, consulting, and related services are ready to solve the tax implications for your business. We can efficiently assess your business and help you understand the impact of Corporate Tax.
For more information on the different professional accounting, auditing, and tax services that we provide, please visit: https://maatsca.com/
