The UAE as a long-standing tax haven for businesses has changed its tax environment considerably by introducing Corporate Tax (CT). Since June 2023, the businesses in all the Emirates have been mandated to adhere to this new tax regime. The tax is administered by the Federal Tax Authority (FTA) within the precincts of the Federal Decree-Law No. 47 of 2022.
This blog will inform businesses of those that require registration to file under the corporate tax in the UAE, exemptions, compliance dates and sanctions on failure to do so. This article has all the details that you need whether you are operating a small business, a sole proprietorship or a multinational.
What is UAE Corporate Tax?
Corporate tax (CT) in the UAE is a direct tax imposed on the net profits of the businesses in the country. It is intended to facilitate the attempts of the UAE to align with the international standards of tax transparency and diversify the state income, as well as to promote the development of a competitive business climate.
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 is applied to every business in the UAE regardless of whether they are in the free zone or not, foreign companies that experience regular business in the UAE, as well as bank operations. It should be noted though that not every income is taxable. As an example, the corporate tax is not applied to employment income, dividends, and capital gains
Who Needs to Register for UAE Corporate Tax?
According to the UAE Corporate Tax Law, most businesses are required to be registered irrespective of the fact that their annual profit does not exceed AED 375,000. The following are some of the entities that should be registered:
1. Legal Entities
Every legal person that is either in free zones or in mainland has to register as part of corporate tax. These include:
- Mainland Companies: Companies are required to register any company that is operating under a UAE commercial license irrespective of its revenue.
- Free Zone Entities: While many free zone businesses may still enjoy tax incentives, they are not exempt from registration.They should enroll at the FTA to ascertain that they are in compliance with the new tax laws.
- Foreign Entities: There are also businesses that are incorporated in a foreign country but trade in the UAE on a regular basis and they are also required to be registered.
Related Guide: Corporate Tax Rules for Free Zone Businesses in the UAE
2. Natural Persons (Individuals)
Natural persons that are engaged in the business activities with the use of a commercial license can be registered in case their annual revenues reach AED 1 million. This includes:
- Freelancers and sole proprietors: All who run business in his or her own name are required to be registered in case they exceed the revenue limit.
Though such businesses might be the small business relief provision (which is less than AED 3 million in revenue), they have to be registered to take advantage of any given relief.
3. Eligibility in the Public Benefit Entities.
Some of the entities under the Cabinet Decision No. 37 of 2023 on the public benefit organizations should also be registered. These entities are charitable foundations, and other organizations in the interest of the society that work in their favor.
Exemptions from UAE Corporate Tax
Although the corporate tax is paid by a broad number of entities, there are some exceptions that make sure that certain areas or forms of income are not affected by the tax. These include:
1. Businesses Engaged in Natural Resource Extraction
Corporations that deal with extraction of natural resources do not pay federal corporate tax. They are however liable to Emirate level of corporate tax which was in place before the new federal tax.
2. Investment Income of Individuals
Income derived as a result of individual investments, including:
- Capital gains and dividends on share or security ownership.
- Interest received on savings or deposit accounts.
- In- personal capacity of real estate investments.
3. Intra-Group Transactions
Provided that some requirements are fulfilled, the corporate tax on qualifying intra-group transactions and reorganizations is not to be paid and the businesses will be able to restructure without generating any extra taxation expense.
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?
Corporate tax registration is done online via the EmaraTax Portal which is offered by the Federal Tax Authority (FTA). The following are steps that would help us to get 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
Companies that earn less than AED 3 million can use the Small Business Relief to evade corporate tax payment. Nevertheless, they are required to sign with the FTA in order to receive this relief.
Implications for Free Zone Businesses
Businesses operating in free zones enjoy specific tax incentives according to the law on corporate tax in the UAE. But despite the possibility of enjoying the tax exemption of 0 on some of their actions, they must still obtain registration at the FTA. Noncompliance with the same may result in penalties and withdrawal 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
With the emergence of corporate tax in the UAE, it has become a major change to all businesses in the country. Irrespective of the size or profitability of your business, it is important to have your business registered with the FTA in time to avoid fines or other penalties as a way of ensuring that you do not break the law.
The available business-friendly environment in the UAE allows businesses to remain in the advantageous position by registering early and keeping up to date with the various changes in tax regulations associated with the country and powering the nation towards strategic growth and development.
Wish to have your taxes sequestered with ease? Finanshels is the answer!
