New Corporate Tax Law in the UAE: What You Need to Know

As of June 2023, a new corporate tax law will come into force in the UAE, which makes it mandatory for companies to file tax returns even if they are registered in free economic zones.

Corporate tax is a tax on the net income of corporations and other businesses.
The corporate tax rate is 9% on taxable income that exceeds 375,000 UAE Dirhams (AED). If the taxable income is below this threshold, the corporate tax rate is 0%.

Example #1:
Company A has a taxable income of 300,000 dirhams. Considering that this income is less than the AED 375,000 threshold, the company is subject to a 0% corporate tax rate and is not required to pay corporate tax.

Example #2:
Company B has a taxable income of AED 500,000. Taxable income over the 375,000 Dirhams threshold is 125,000 dirhams (500,000 dirhams - 375,000 dirhams). In this case, Company B must pay corporate tax at the rate of 9% on the amount of 125,000 dirhams, which amounts 11,250 dirhams.

All companies are required to register for corporate tax and obtain a corporate tax registration number.

Even if the company was not active during the reporting period, it must file a tax return annually: thus, the company in example A above will have to file a tax return anyways. This requirement also applies to companies from all UAE Free Economic Zones.

In addition, companies are required to keep invoices and other documents for 7 years.

The requirements apply to everyone, but some individuals may apply a 0 percent rate:

1. for taxable income not exceeding 375,000 Dirhams;
2. qualified free zone residents (i.e. residents who comply with certain requirements set by law, including availability in the UAE, compliance with transfer pricing requirements) in terms of "Qualifying" income (e.g. income derived from transactions with companies outside the UAE).

Regardless of the applied 0 percent rate, residents are required to file a tax return.
Small Business Relief (usually for mainland companies) is also possible to apply to startups.

Fines for violating tax laws in the UAE are extremely harsh. For example, there is a fine of 3,000 Dirhams for filing an incorrect tax return the first time and 5,000 Dirhams for repeated violations.

How is profit counted for corporate tax?
The taxable income for the tax period will be the net profit (or loss) in accordance with the Accounting records. The accounting net profit (or loss) of a business is the amount recorded in its financial statements prepared in accordance with internationally recognized accounting records standards. The Corporate Tax Act contains a number of specifics regarding the procedure for calculating profits, including restrictions on the deduction of a portion of expenses, etc.

What are the essential deadlines for filing tax returns and paying corporate tax?
The tax applies to periods beginning from 01.06.2023. The tax period is usually equal to the calendar year according to the Gregorian calendar (from January 1 to December 31), but a different order may be established by the corporate documents of the company paying the tax.

What tax benefits or exemptions are available to small and medium-sized businesses?
As mentioned above, free zone resident companies can use the 0 percent tax rate on profits that do not exceed a certain threshold (375,000 AED)
Resident taxpayers may also qualify for the small business exemption if their revenues in the relevant tax period and previous tax periods are less than AED 3 million.

This exemption does not apply to qualified free zone residents, or members of multinational enterprise groups (MNE groups).

1. Register for tax: we recommend that you do this from June 1 to get an early optimal deadline for filing your first returns;
2. Make a complete list of liabilities for your case and estimate whether tax liability will arise;
3. Start keeping correct accounting records so that filing tax returns doesn't become a nightmare.

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