What is Corporate Tax in UAE?

The Corporate tax is a 'direct tax' levied from the net income or profits of the corporation or business. It is also known as "Corporate income tax" or "Business Profits tax" in other jurisdictions. It helps the UAE meet international tax transparency standards and prevent harmful tax practices. The UAE introduced this federal corporate tax system on 1st June 2023. This article explores the key aspects of UAE corporate tax, including rates, exemptions, and applicability.

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Who is subject to Corporate tax in UAE?

In UAE, companies or persons that fall under the following criteria are required to pay corporate tax.

• UAE-based Businesses: Companies incorporated in the UAE, regardless of ownership (local or foreign), are subject to corporate tax.
• Effectively Managed Foreign Companies: Even foreign companies can be subject to the tax if they are "effectively managed and controlled" within the UAE.
• Foreign Businesses with a Local Presence: This includes foreign entities with a Permanent Establishment (PE) in the UAE or those with a taxable nexus established.
• Individuals Running Businesses: Natural persons engaged in business activities in the UAE, directly or through sole proprietorships or unincorporated partnerships, are subject to the tax. Cabinet Decision No. 49 of 2023 provides further details on what activities qualify as a taxable business for individuals.

Who is exempted from Corporate Tax in UAE?

Below, we have given about the companies or businesses exempted from corporate tax in UAE either automatically or through submission of an application to the Federal Tax Authority (FTA).

Automatic Exemptions from Corporate Tax:

• Government Entities: The UAE federal and emirate governments, departments, authorities, and public institutions are automatically exempt from corporate tax.
• Government-Controlled Entities: Companies wholly owned and controlled by a government entity are exempt, provided they carry out a mandated activity listed in a Cabinet Decision.
• Resource Businesses: Businesses involved in extracting UAE natural resources or related non-extractive activities may be subject to a different tax regime at the emirate level, exempting them from the federal corporate tax. However, they need to meet specific conditions
• Qualifying Public Benefit Entities: Entities established for charitable, religious, educational, or other public benefit purposes can be exempt if listed in Cabinet Decision No. 37 of 2023 or any subsequent relevant decisions.

Tax Exemptions Requiring Application:

• Qualifying Investment Funds: Investment funds can be exempt from corporate tax if they meet the requirements set by the Federal Tax Authority.
• Pension and Social Security Funds: Both public and private pension or social security funds can qualify for exemption if they comply with the conditions outlined in Ministerial Decision No. 115 of 2023
• Wholly-Owned Subsidiaries of Exempt Entities: UAE-based legal entities wholly owned and controlled by certain exempt entities can be exempt if they undertake specific activities defined in the Corporate Tax Law.

UAE Corporate Tax Rates

In the following table, we have given the taxable profit and its equivalent corporate tax in UAE,

Also read: How to calculate corporate tax in UAE?

How to register for Corporate tax in UAE?

Below, we have given the brief steps to capture the corporate tax registration process in UAE,

1. Log in to EmaraTax: Use your credentials or UAE PASS to access the EmaraTax user dashboard.

2. Check Taxable Persons List: The list should display businesses registered under your profile. If empty, click "Create" to add a new taxable person (your business).

3. Initiate Corporate Tax Registration: Locate the "Corporate Tax" tile on the dashboard and click "Register" to begin the registration application.

4. Complete Registration Application: The EmaraTax platform will guide you through the application process, prompting you for the necessary information.

5. Submit Application: Once you've entered all the required details, submit the application electronically.

6. Wait for Response: FTA could respond to the application after 20 business days from the submission date.

7. Get a Tax registration number (TRN): You'll receive a tax registration number (TRN) for your business after the successful registration.

Learn more: Steps to register for corporate tax in UAE?

Conclusion

The UAE implemented a federal corporate tax system on June 1st, 2023. Most businesses operating in the UAE are subject to the tax, with a 0% rate for profits below AED 375,000 and a 9% rate for exceeding profit. We hope you know who is subject to the tax, exemptions, corporate tax registration procedures, and tax rates with this article. Choose Filings.ae experts to make your corporate tax registration process simpler.

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