The era of no corporate income tax in the UAE is coming to an end. From June 2023 onwards, corporate tax will apply to banking operations and businesses involved in real estate management, construction, development, agency, and brokerage activities. Moreover, companies and individuals with a commercial license will also be subject to paying corporate tax in UAE.
The implementation of the corporate tax system, following international standards, is anticipated to strengthen the UAE’s status as a premier destination for business and investment. This is also expected to emphasize the UAE’s dedication to tax transparency and avoiding damaging tax practices in line with global norms.
Let’s find out all you need to know about Corporate Tax UAE 2023. Reading this article will certainly help you understand what CT is and what you should do to prepare for it.
What is Corporate Tax?
Corporate tax is a fee imposed by the government on the profits of corporations or business entities. The government uses the revenue generated from this tax to fund various programs and services. The amount of corporate tax that a corporation must pay is determined by its income and the corresponding tax rate.
The income of a corporation encompasses all the revenue generated from its business activities and is considered for tax calculation. This includes sales profits, investment interest, rental income, as well as other sources such as capital gains from asset sales.
Basically, a corporation’s taxable income is multiplied by the relevant tax rate in order to compute the corporate tax. This taxable income is obtained by subtracting deductions and exemptions from the corporation’s total revenue. Finally, the result is taxed at the appropriate corporate tax rate.
This year, the UAE government will implement corporate tax, which may prove to be troublesome for some enterprises.
Corporate Tax Rates in the UAE 2023
The UAE has announced a new federal decree on corporate and business taxation, which will take effect on June 1, 2023. The legislation establishes a 9% tax rate on taxable profits exceeding Dh375,000 ($102,000), while earnings below this amount will remain tax-free to support smaller businesses and start-ups.
The tax regime will also preserve exemptions for industries such as extractives, pension funds, and investment funds and continue to offer a zero tax rate for qualifying income made in free trade zones.
The Ministry of Finance created a new tax policy to normalize the UAE’s tax environment, as the EU previously blacklisted the country as a non-cooperative tax jurisdiction. While the 9% rate is lower than the global minimum rate of 15% established by the OECD, the UAE government has stated its support for the global minimum and may raise the rate to 15% if the world implements pillar two.
Eligibility for Corporate Tax in the UAE
When it comes to Corporate Tax in UAE, the eligibility criteria can vary based on the jurisdiction where your company is located. However, in general, all companies operating within the UAE with annual revenue exceeding a certain amount must pay corporate tax, regardless of their national origin or place of incorporation.
Keep in mind that the UAE’s Corporate Tax (CT) exempts certain businesses, including those involved with natural resources, government organizations, charities, pension funds, and investment funds.
If you are running a business in the UAE, you must clearly understand the eligibility criteria for Corporate Tax in your jurisdiction. Working with a tax professional or financial advisor ensures that your company complies with all relevant tax laws and regulations and minimizes your tax liability.
You can contact Business 4 Business Consultancy experts if you require guidance and assistance regarding corporate tax UAE implementation. They will help you understand it and ensure your company transitions smoothly to the new tax regime.
Corporate Tax Filing and Payment Process
There are several steps involved in the corporate tax filing and processing system in the United Arab Emirates, as explained below:
Determine Tax Liability
- Companies must first calculate their taxable income for the year to determine the amount of tax owed. This is done by reviewing their financial statements and considering any taxable income earned during the year.
- After determining the taxable income, the next step is to calculate the tax liability. The tax liability is the amount of tax owed to the government, calculated based on the taxable income and the tax laws and regulations in the United Arab Emirates (UAE).
Register for Tax
- If the company has yet to register for tax with the Federal Tax Authority (FTA), it must apply for tax registration. The application process can be completed online through the FTA’s e-Services portal.
- Once the FTA has approved the application for tax registration, the company will receive a Tax Registration Number (TRN), a unique identifier for the company’s tax affairs.
File a Tax Return
- The company must prepare a tax return to fulfill its tax obligations. The tax return must include the year’s taxable income and tax liability.
- After preparing the tax return, the company must submit it to the FTA through its e-Services portal. The tax return must be submitted by the deadline, which is usually December 31st of the year.
Pay Tax
- The company must calculate the amount of tax owed based on its tax liability. This amount must be paid to the FTA.
- The tax must be paid through electronic transfer or at a designated bank. The payment must be made by the end of March of the following year.
Keep Records
- For five years, companies must keep records of their tax affairs, including tax returns and payment receipts. This will ensure they have the necessary documentation in case of an audit by the FTA.
- In addition to keeping records, companies must retain all documentation supporting their tax return. This includes invoices and receipts.
It is also important to note that the UAE operates a self-assessment system, meaning that the company must calculate its tax liability accurately and file its tax return on time. Companies must ensure that they comply with the tax laws and regulations in the UAE to avoid any penalties or fines.
Common Corporate Tax Issues and Challenges
Corporate tax in UAE may pose various issues and challenges for companies operating within its borders. Some of the major challenges include:
Tax compliance obligations: Companies must make sure they abide by the current tax laws and regulations to avoid potential fines and penalties.
Transfer pricing practices: Multinational companies must be cautious of their transfer pricing methods, as they could result in tax evasion or avoidance.
Unwanted disputes: Conflicts may arise between companies and tax authorities over the interpretation and application of tax laws.
Double taxation: Companies operating in multiple countries may face double taxation issues due to varying tax laws.
Tax planning strategies: Companies must develop strategies that minimize tax liability while adhering to legal requirements.
International tax planning: Companies with international operations must align their global tax planning with local tax laws.
Value-added tax (VAT) compliance: Companies must ensure they comply with VAT regulations in the UAE.
Conclusion
If you’re still unsure whether you’re liable to pay corporate tax in UAE or not, then get in touch with B4B Consultancy— a professional business management service provider always available to assist you in regard to corporate tax 2023. We’ll guide you and walk you through the entire process without any hassle.
