Blog Includes
- Overview of UAE Corporate Tax
- Corporate Tax Rate and How it Works
- Exemptions and Incentives for Start-Ups
- Step-by-Step Guide to Corporate Tax Filing in UAE
- Frequently Asked Questions (FAQs)
- Conclusion
What is Corporate Tax in UAE?
Tax on a corporation’s taxable profit is imposed in the same way as businesses, the UAE has always been a zero corporate tax zone, and introduced its first federal corporate tax in June 2023 in an attempt to change their economy by diversifying, and to comply with international taxation laws. Being an Entrepreneur creating a new company does leave you asking how does the new corporate tax system affect your business? This guide will give you all you need to know about how the new tax system will affect your business and how to achieve benefits from the new system with respect to the new tax rate being applied to your business.
Corporate Tax Rate in UAE
In 2023, UAE will impose a 9% corporate tax to all revenue/income above AED 3,75,000, which is received by a sole business. Any profit below this amount will not be taxed. So if your startup has a profit below AED375,000 in a year, then you will not pay corporate tax. This helps newly created businesses.
Here's a quick breakdown of the corporate tax rate structure:
Profit Range
Corporate Tax Rate
Up to AED 375,000
0% (Exempt)
Above AED 375,000
9%
This structure allows small businesses and start-ups to thrive while contributing to the economy once they reach a certain profitability level. It also ensures that larger businesses with higher profits contribute a fair share to the economy.
How Does Corporate Tax Work for Start-Ups?
If your business is a start-up, the only tax you will have to pay is corporate tax, and that too only if your annual profits are over AED 375,000. Corporate tax is calculated on the net profit, meaning all business expenses can be deducted from your total revenue before the tax base is calculated, including but not limited to payroll expenses, rent and utilities, and all other costs of doing business.
Example:
If your start-up’s profit is AED 500,000, you would only be taxed at 9% on AED 125,000 of profits because of the AED 375,000 threshold. The calculation is AED 500,000 - AED 375,000 = AED 125,000, then 9% of 125,000 = AED 11,250, which is what you owe in corporate taxes.
Key Points for Start-Ups:
- Taxable Profit: Corporate tax is calculated on your company’s taxable profit, not on your revenue. This allows you to deduct business expenses.
- Filing Deadlines: You will need to file your corporate tax returns annually, and it’s important to keep track of your profit and expenses throughout the year.
- Taxable Entities: All businesses in the UAE, including free zone companies and mainland companies, are subject to corporate tax, with some exceptions (as discussed below).
Exemptions and Incentives for Start-Ups
While the corporate tax rate in the UAE is generally set at 9%, there are certain exemptions and incentives that you, as a start-up founder, should be aware of:
Free Zones
A number of UAE Free Zones provide tax benefits to companies operating in their domain. In fact, some of these free zones provide up to 15-50 years of tax holidays and some might still be exempt from the corporate tax under certain conditions. If your start-up is located in a free zone, you might benefit from such privileges.
Small Businesses and Start-Ups
Start-ups with profits below AED 375,000 are not required to pay corporate tax, providing significant financial relief during the early years of operation.
R&D and Innovation Incentives
If your start-up is engaged in research and development (R&D) or innovation, you may be eligible for tax deductions or credits, depending on your industry.
How to File Corporate Tax in UAE?
Filing corporate tax in the UAE is a simple process. Nevertheless, it is vital to comprehend the process and meet the deadline. This article will outline a step-by-step guide on how to file corporate taxes:
- Register for Corporate Tax:
Ensure that your business is registered to pay corporate tax with the Federal Tax Authority (FTA). In order to register your business, you need to submit your details and obtain a tax number.
- Prepare Your Financial Statements:
Obtain all your financial documents, including your profit and loss statements, balance sheets, and income statements. These will be needed to determine your taxable profits.
- Determine Your Taxable Profit:
The process now requires you to subtract your business expenses from your revenues and calculate the profit. Remember, you pay taxes from the profit earned but above AED375,000.
- Submit Your Tax Return:
Your tax return must be filed online on the online portal operated by the FTA. It must be complete and accurate.
- Pay Corporate Tax
Once you have filed your tax return, you will be notified by the FTA on the tax you have to pay. You will then be required to pay the tax within the notified period.
FAQs About Corporate Tax in UAE
1. Do start-ups need to pay corporate tax?
Start-ups only need to pay corporate tax if their profits exceed AED 375,000 per year. If your profits are below this amount, you will be exempt from the tax.
2. Are businesses in free zones exempt from corporate tax?
Some businesses in free zones may be exempt from corporate tax, depending on the specific free zone’s regulations and whether the business meets the required criteria.
3. Can I deduct my business expenses from my taxable profit?
Yes, you can deduct legitimate business expenses such as salaries, rent, and utilities from your total revenue to determine your taxable profit.
4. What happens if I miss the tax filing deadline?
If you miss the filing deadline, you may incur penalties. It’s important to file your tax return on time to avoid additional charges.
5. What should I do if my business is at a loss?
If your business incurs a loss, you are not required to pay corporate tax. In fact, losses may be carried forward to offset profits in the future.
Conclusion
A landmark event in the evolution of the UAE economy is now rolled out; the launch of the corporate tax system into the UAE. As a start-up owner, it is essential that you are aware of how the corporate tax system works, what you can claim as an exempt business and how the introduction of corporate tax is going to have a positive impact not only on your own business but on the UAE economy as a whole.
It is also essential that you are always keeping yourself informed of the constant changes to the tax laws and how to adapt. If this is something you are used to then you will not have any problems with corporate taxes.
Resources:
- UAE Federal Tax Authority. (2023). Corporate Tax Law. https://www.tax.gov.ae
- PwC. (2023). UAE Corporate Tax Explained. https://www.pwc.com
- Gulf News. (2023). UAE Introduces Corporate Tax. https://www.gulfnews.com
By understanding these core principles, you’ll be better equipped to manage your finances, optimize your business operations, and comply with the new corporate tax regulations in the UAE. Happy growing!
