UAE introduces corporate tax regulations for 2024
Companies must move quickly to prepare for the upcoming corporate tax implementation in the United Arab Emirates. A corporate tax will be imposed on all businesses, including those operating in free zones, as of June 1, 2023.
Registering for Corporate Tax
Companies must guarantee compliance by registering for corporate income tax, regardless of their current VAT registration status.
There are four easy steps in the registration process, which takes no more than 30 minutes and can be accessed through the EmaraTax portal on the FTA website. To guarantee a seamless registration process, a comprehensive video guide is accessible for consultation.
Accurate documentation is necessary in order to register a corporation for taxes. For legal entities, the necessary paperwork consists of the authorized signatory's passport, trade or business license, and Emirates ID in addition to the proof of authorization (POA/MOA). The FTA emphasizes accuracy in shareholding percentages and alignment with the MOA's incorporation date.
Creating a Corporate Tax Group
As per the guidelines set forth by the Free Trade Area, organizations that wish to establish a Corporate Tax Group must first register on their own, get a Tax Registration Number, and then apply for group formation.
Maintaining Accounting Records
Businesses are encouraged to enlist the support of professional teams to guarantee conformity with the stipulations of accounting and bookkeeping. Conforming to the corporate tax regulations of the UAE necessitates maintaining accurate accounting records.
Filing Corporate Tax Submission
After the end of the first taxable period, companies are required to file a corporate tax submission with the Federal Tax Authority (FTA). Even if a company qualifies for an exemption or tax relief, filing a tax submission is mandatory.
Corporate Tax Rates and Exemptions
Corporate tax rates in the UAE vary based on annual net profits:
- Tier 1: 0 percent tax rate for companies with annual net profits up to AED375,000.
- Tier 2: 9 percent tax rate for companies with profits exceeding AED375,000.
- Tier 3: Different rates for large multinational companies, subject to OECD Pillar Two guidelines.
Assurance of company income tax exemptions in free zones is not automatic. Individuals meeting specific criteria may be eligible for exemption as qualifying free zone persons.
Small Business Relief RuleCompanies are exempt from corporate income tax if their annual revenue is less than AED 3 million.
Calculation of Taxable Profit
Revenue less business-related costs equals taxable profit; there are special guidelines for costs such as salaries, interest, entertainment, and overseas branches.
Distinction Between Corporate Tax and VAT
Corporate income tax is paid on annual net profits, while VAT is collected from customers during sales transactions. Existing VAT-registered businesses must also register for corporate income tax.
Administrative Penalties and Updates
Effective August 1, 2023, administrative penalties for breaking corporate tax laws will range from AED 500 to AED 20,000 depending on the specific infraction.
In order to inform the business community about corporate income tax, the FTA has initiated a comprehensive awareness drive encompassing webinars, workshops, and sessions. Continuous support is provided through a dedicated awareness platform, and essential topics for ensuring self-compliance are addressed in virtual workshops focusing on "Corporate Tax Registration."