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The UAE, long regarded as a tax-free haven for businesses, made significant changes to its tax landscape by introducing Corporate Tax (CT). Starting from June 2023, businesses across the Emirates have been required to comply with this new tax regime. The Federal Tax Authority (FTA) administers the tax under the framework of Federal Decree-Law No. 47 of 2022.
This blog will guide businesses on who needs to register for UAE corporate tax, key exemptions, compliance deadlines, and the penalties for non-registration. Whether you’re running a small business, a sole proprietorship, or a multinational, this article covers the essentials you need to know.
What is UAE Corporate Tax?
Corporate tax (CT) in the UAE is a direct tax levied on the net profits of businesses operating within the country. It is designed to support the UAE’s efforts to align with global tax transparency standards and diversify government revenues, while also fostering a competitive business environment.
Corporate tax rates are as follows:
- 0% for profits up to AED 375,000.
- 9% for profits exceeding AED 375,000.
- Special tax rates apply to certain large multinational enterprises as part of the OECD’s Base Erosion and Profit Shifting (BEPS) framework, particularly under Pillar Two
The tax applies to all businesses operating in the UAE, including those in free zones, foreign entities conducting regular business in the UAE, and banking operations. However, it is important to note that not all income is subject to tax. For instance, employment income, dividends, and capital gains are exempt from the corporate tax.
Who Needs to Register for UAE Corporate Tax?
Under the UAE Corporate Tax Law, registration is mandatory for most businesses, even if their annual profit does not exceed AED 375,000. Here’s a breakdown of entities that need to register:
1. Legal Entities
All legal persons, whether operating within the mainland or in free zones, are required to register for corporate tax. These include:
- Mainland Companies: Any company operating under a UAE commercial license, regardless of revenue, must register.
- Free Zone Entities: While many free zone businesses may still enjoy tax incentives, they are not exempt from registration. They need to register with the FTA to ensure compliance with the new tax laws.
- Foreign Entities: Businesses incorporated outside the UAE but regularly conducting trade in the UAE must also register
Related Guide: Corporate Tax Rules for Free Zone Businesses in the UAE
2. Natural Persons (Individuals)
Natural persons who conduct business activities under a commercial license are subject to registration if their annual revenues exceed AED 1 million. This includes:
- Freelancers and sole proprietors: Anyone conducting business under their personal name must register if they cross the revenue threshold.
Even if these businesses fall under the small business relief provision (less than AED 3 million in revenue), they must register to avail themselves of any applicable relief
3. Qualifying Public Benefit Entities
Certain entities that fall under the Cabinet Decision No. 37 of 2023 for public benefit organizations must also register. These organizations include charitable foundations and other public interest entities that operate for the benefit of society.
Exemptions from UAE Corporate Tax
While corporate tax applies to a wide range of entities, certain exemptions ensure that specific sectors or types of income are not subject to the tax. These include:
1. Businesses Engaged in Natural Resource Extraction
Companies involved in the extraction of natural resources are exempt from federal corporate tax. However, they remain subject to Emirate-level corporate taxation, which predates the new federal tax.
2. Investment Income of Individuals
Income derived from personal investments, such as:
- Dividends and capital gains from owning shares or securities.
- Interest earned on savings or deposit accounts.
- Real estate investments in an individual’s personal capacity
3. Intra-Group Transactions
If certain conditions are met, qualifying intra-group transactions and reorganizations will not be subject to corporate tax, allowing businesses to restructure without incurring additional tax liabilities
Corporate Tax Deadlines and Penalties
1. Deadlines Based on License Issuance
Businesses are required to register by specific deadlines depending on when their commercial licenses were issued. The key deadlines for 2024 are as follows:
- January–February License Issuance: Register by 31 May 2024.
- March–April License Issuance: Register by 30 June 2024.
- May License Issuance: Register by 31 July 2024.
2. Penalties for Late Registration
Failure to register by the deadlines results in a penalty of AED 10,000. In addition to this, continued non-compliance can lead to daily penalties, legal action, and reputational damage.
Related Guide: New Penalties for Non-Compliance
How to Register for UAE Corporate Tax?
The process of registering for corporate tax is done online through the EmaraTax Portal provided by the Federal Tax Authority (FTA). Here’s a step-by-step guide to getting started:
- Set Up an EmaraTax Profile: Register an account on the FTA’s platform if you haven’t done so already.
- Prepare Required Documentation:
- A copy of your Trade License.
- Copies of Memorandum of Association, Share Certificates, or Power of Attorney.
- Emirates ID and passport copies of owners, managers, and authorized signatories.
- Financial statements to verify your financial year.
- Submit Your Application: Complete the registration on the EmaraTax platform. Upon approval, you’ll receive your Corporate Tax Registration Number (CTRN)
Related Guide: How to Register for Corporate Tax in the UAE: A Step-by-Step Guide
Small Business Relief
Businesses with revenues under AED 3 million may apply for Small Business Relief, which helps them avoid paying corporate tax. However, they must still register with the FTA to qualify for this relief
Implications for Free Zone Businesses
Businesses operating in free zones enjoy specific tax incentives under the UAE’s corporate tax law. However, even though they may benefit from 0% tax rates on certain activities, they are still required to register with the FTA. Failure to comply can lead to penalties and revocation of their tax incentives
Preparing for Corporate Tax Compliance
To ensure smooth compliance with the new tax regime, businesses should:
- Maintain Proper Financial Records: Accurate records are crucial to calculating taxable profits and filing returns efficiently.
- Implement Accounting Software: Integrating an automated system can streamline tax compliance and make the filing process easier.
- Seek Professional Advice: Consulting with tax professionals can help businesses navigate the complexities of the new corporate tax laws and ensure compliance.
FAQs: Corporate Tax in the UAE
1. What is Corporate Tax in the UAE?
Corporate Tax (CT) is a direct tax levied on the net profits of businesses operating in the UAE. Introduced in June 2023, it aligns the UAE with global tax standards and supports government revenue diversification.
2. What are the corporate tax rates in the UAE?
- 0% for profits up to AED 375,000.
- 9% for profits exceeding AED 375,000.
Special rates apply to certain large multinational enterprises under the OECD BEPS framework (Pillar Two).
3. Who needs to register for UAE Corporate Tax?
The following entities are required to register:
- Legal Entities: Mainland companies, free zone entities, and foreign entities conducting business in the UAE.
- Natural Persons (Individuals): Freelancers and sole proprietors conducting business under a commercial license, with revenue exceeding AED 1 million.
- Qualifying Public Benefit Entities: Certain organizations under Cabinet Decision No. 37 of 2023, such as charitable foundations and other public benefit entities.
4. Are there any exemptions from UAE Corporate Tax?
Yes, some exemptions apply, including:
- Businesses Engaged in Natural Resource Extraction: These remain subject to Emirate-level corporate tax but are exempt from the federal corporate tax.
- Investment Income of Individuals: Income from personal investments (e.g., dividends, capital gains, interest on savings) is exempt.
- Intra-Group Transactions: Qualifying intra-group transactions and reorganizations are exempt if certain conditions are met.
5. What are the deadlines for corporate tax registration?
Registration deadlines in 2024 depend on the issuance date of the business license:
- January–February License Issuance: Register by 31 May 2024.
- March–April License Issuance: Register by 30 June 2024.
- May License Issuance: Register by 31 July 2024.
6. What are the penalties for late registration?
Failure to register on time results in a penalty of AED 10,000. Continued non-compliance can lead to additional daily penalties, legal action, and reputational harm.
7. How can businesses register for corporate tax in the UAE?
Registration is completed online through the EmaraTax Portal, provided by the Federal Tax Authority (FTA). Steps include:
- Set Up an EmaraTax Profile: Register an account on the FTA platform.
- Prepare Required Documents: These include a copy of the trade license, MOA, share certificates, Emirates ID and passport copies, and financial statements.
- Submit the Application: Complete the registration on EmaraTax. Upon approval, a Corporate Tax Registration Number (CTRN) will be issued.
8. What is Small Business Relief, and who can apply for it?
Businesses with revenues under AED 3 million may qualify for Small Business Relief, exempting them from corporate tax payments. However, they must still register with the FTA to receive this relief.
9. Do free zone businesses need to register for corporate tax?
Yes, free zone businesses must register for corporate tax even if they qualify for tax incentives or a 0% tax rate. Non-compliance may lead to penalties and revocation of tax incentives.
10. How can businesses prepare for corporate tax compliance?
To ensure compliance, businesses should:
- Maintain Proper Financial Records: Accurate records are essential for calculating taxable profits and filing returns.
- Implement Accounting Software: Automated systems can simplify compliance.
- Seek Professional Advice: Consulting with tax experts can help businesses navigate UAE corporate tax laws.
Conclusion
The introduction of corporate tax in the UAE marks a significant shift for businesses across the country. Regardless of the size or profitability of your business, timely registration with the FTA is crucial to avoid penalties and ensure compliance with the law.
By registering early and staying up-to-date with the latest tax regulations, businesses can continue to benefit from the UAE’s favorable business environment while contributing to the country’s strategic growth and development.
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