At the federal level, the UAE does not impose a corporate income tax at this time. However, oil and gas firms and international bank branches are subject to an Emirate-level Corporate Tax (CT) under the Dubai taxation system. Companies based out of the United Arab Emirates’ (UAE) several “Free Zones” are exempt from federal income tax.
It has been suggested by the United Arab Emirates that the Dubai corporate tax be implemented on June 1, 2023, at a rate of 9% for those with profits over AED 375,000. It will be the Federal Tax Authority’s job to manage UAE CT, collect taxes, and enforce the law. Except for a few specific exemptions, the UAE Corporate Tax will be levied on all commercial enterprises operating inside the UAE.
Income Tax in Dubai: How U.A.E. Citizens and Foreigners Are Taxed
(Both citizens and non-residents) corporates and not individuals of (Dubai) UAE are subject to the Dubai income tax (Dubai Corporate Tax) on the proceeds and gains from any economic activity conducted in the emirate. Certain revenue received by a non-permanent resident’s establishment (PE) in Dubai that has its source in the United Arab Emirates is subject to taxation. There would be exemptions from the Dubai income tax for things like salary and investment earnings.
When it comes to taxation, what is the rate in Dubai?
If your annual net profit is more than AED 375,000, Dubai will tax you at a rate of 9% of your net profit or loss after certain adjustments.
How much of a levy is placed on business profits in Dubai?
The corporate tax rate in Dubai is currently at 0%. For fiscal years beginning on or after June 1, 2023, however, the rate of income tax in Dubai will be on the net profit of company after certain adjustments on income beyond AED 375,000.
To what extent are UAE Free Zone corporations subject to UAE corporate tax?
If a UAE Free Zone firm abides by the terms of its registration and does not conduct any transactions with mainland enterprises, it may continue to claim exemption from taxable earnings. However, if they are a multinational corporation (MNC) falling under Pillar 2 (consolidated revenue > Euro 750 million), it will be fascinating to see how they are taxed. This is the most intriguing thing to keep an eye on after the bill is passed.
How does the corporate tax rate in the UAE affect compliance with ESR rules?
As of now, it is unclear whether or not ESR is mandatory for organisations subject to UAE Corporate Tax. Companies based in Free Zones or other areas that claim exemption from Dubai’s corporate tax may nevertheless be required to meet ESR compliance in order to prove they have a significant presence in the UAE.
Is there any provision for foreign tax credit under Dubai’s income tax scheme for taxes paid by UAE firms on overseas revenue that is taxable in the UAE?
Companies would be able to offset WHT paid on foreign earnings under new proposals being considered in the UAE. The following rule of thumb should be observed: – The only time a credit may be used is to offset UAE tax due on foreign-earned income. In addition, if a Free Zone entity is free from tax, it may not be eligible for a tax refund in the UAE. If the WHT paid in the UAE is lower than the WHT paid abroad, then only the lower amount should be credited.
When it comes to UAE corporate tax, how would it affect overseas branches of multinational corporations?
Unless exempted by law, branches of foreign companies in the United Arab Emirates will be treated as permanent establishments (PE) and subject to Corporate Tax under the planned Dubai Corporate taxation system. However, its HQ may claim a credit for Dubai income tax paid if they meet the requirements of their home country’s credit legislation. You may reach out to the professionals if you’d want to learn more about how the implementation of Corporate Tax could affect your company.
Facts to remember about Dubai’s tax system
- The UAE Corporate Tax does not apply to personal income, just corporate income. As a result, residents of the UAE and citizens of other countries will not have to pay taxes on the following forms of income: – Gains from working, dividends, rental income from properties in the UAE, and gains from other assets.
- Income of a Non-Resident that is sourced in the UAE; or Income of a Non-Resident that is obtained from a Permanent Establishment in the UAE are the only two scenarios in which a Non-Resident will be liable to corporation tax in the UAE.
- After deductions and credits have been applied, a company must pay corporate tax on the resulting profit or loss.
- The tax breaks enjoyed by UAE-based businesses and their overseas operations in Free Zones would continue to be available under the new CT scheme.
- Companies that operate in the United Arab Emirates and are liable to taxes at the Emirate level include those that harvest and utilise the country’s natural resources. Corporations that “mine” the earth for its natural resources must pay taxes at the Emirates’ top rate. It has been specified that such enterprises would not be subject to corporation tax in order to prevent double taxation.
- The UAE government exempts from withholding tax any and all local and foreign payments received by UAE enterprises, as well as certain types of transactions.
- Before a person may claim exemption from taxes on dividends and capital gains, they must first fulfil certain conditions.
- A collection of businesses that are headquartered in the United Arab Emirates (UAE) will have the option, under certain conditions, to form a tax group and be treated as a single taxable person. This option will be available to them if they meet the requirements (or fiscal unity).
- As long as there is at least 75% common ownership amongst the entities, losses may be transferred within the group under the CT system.
It is true that the UAE Corporate tax will affect practically all the functions within a business, along with finance, purchase and procurement, information technology, marketing, etc.
For smaller companies in UAE as well as the SME population executing and transforming of their regularities will be the root as they aim to adapt with the tax management in the following months. On the other hand, the larger organizations and multinational companies will already be accustomed to the tax systems, as they have been dealing the countries from around the world. However, each one of them will need guidance. The CT system will apply to all taxable people who do business via sole enterprises, proprietorships, or as individual partners in an unincorporated partnership.
Worth making a note that the Corporate Tax law / legislations are still under discussion and will be published by the relevant authority once they are ready for implementation.
So, if you still have trouble understanding and dealing with the changes that will be implemented due to the UAE corporate tax system? Speak to one of our experienced and certified tax consultants from Efficient CFO.
Book a free consultation today!