Optimize Your Financial Strategy with Oak Business Consultant's Services for Corporate Tax UAE

In the UAE, Corporate Tax applies to:

1. UAE-incorporated businesses: All companies and other business entities incorporated in the UAE are subject to Corporate Tax on their taxable income.
2. Foreign entities: Foreign companies and entities conducting business or earning income from the UAE are also subject to Corporate Tax. This includes those with a Permanent Establishment in the UAE.
3. Free zone businesses: Businesses operating in designated free zones may benefit from special tax incentives, but they are still required to comply with Corporate Tax regulations.
4. Partnerships and unincorporated entities: Certain partnerships and unincorporated entities may be subject to Corporate Tax based on their business activities and structure.

Exemptions and special provisions may apply depending on specific business activities, such as entities engaged in the extraction of natural resources, which are subject to Emirate-level taxation.  Consulting the relevant regulations and seeking professional advice is essential to understand your specific tax obligations and ensure compliance.

In the UAE, certain entities are exempt from Corporate Tax, including:

1. Government entities: Federal and Emirate governments, and their departments, authorities, and other public institutions.
2. Wholly government-owned entities: Businesses wholly owned by the UAE government, carrying out sovereign or mandated activities.
3. Extractive businesses: Companies engaged in the extraction of natural resources, subject to Emirate-level taxation.
4. Non-profit organizations: Charities and public benefit organizations that meet the specified criteria.
5. Investment funds: Funds and investment schemes, subject to meeting regulatory requirements.
6. Free zone businesses: Entities that qualify for free zone tax incentives, provided they comply with all regulatory requirements.

In the UAE, a taxable person is subject to Corporate Tax if they engage in economic activities that generate income within the country. This includes:

1. UAE-incorporated businesses: Companies and other business entities incorporated in the UAE.
2. Foreign entities with a Permanent Establishment: Foreign companies conducting business through a fixed place or agent in the UAE.
3. Free zone businesses: Businesses operating in designated free zones, subject to meeting specific regulatory requirements.
4. Partnerships and unincorporated entities: Entities engaged in business activities within the UAE.

Taxable persons must comply with registration, reporting, and payment obligations as stipulated by the Federal Tax Authority.

Who is a Resident Person?

In the UAE, a Resident Person for Corporate Tax purposes is defined as:

1. Individuals: Any individual who resides in the UAE and conducts business activities there, including sole proprietors and freelancers.
2. Legal entities: Any company or business entity that is incorporated or effectively managed and controlled in the UAE.
3. Branches: Foreign companies that have a branch in the UAE and conduct business activities through that branch.

These entities are subject to UAE Corporate Tax on their worldwide income.

Who is a Non-Resident Person?

A Non-Resident Person in the UAE is an individual or entity that conducts business activities within the country but does not maintain a permanent establishment or residence there. They may engage in economic activities, generate income from UAE sources, but do not have a continuous presence or significant economic ties that would classify them as residents under UAE tax regulations.

What is a Permanent Establishment?

A Permanent Establishment (PE) in the UAE refers to a fixed place of business through which the business activities of an entity are wholly or partly carried out. This includes locations such as offices, branches, factories, workshops, and construction sites where the business operates for a significant period. It also covers agents acting on behalf of a business who have the authority to conclude contracts. The concept is crucial for determining the tax obligations of foreign entities operating in the UAE.

What is Corporate Tax imposed on?

Corporate Tax in the UAE is imposed on the net income or profits derived from a business’s operations. This includes income from:

1. Business Activities: Revenue generated from primary business operations and services.
2. Investments: Profits from investments, including dividends, interest, royalties, and capital gains.
3. Other Profit-Generating Activities: Any other activities that result in taxable income.

Businesses must accurately calculate their taxable income by accounting for all revenues and deducting allowable expenses to determine the Corporate Tax payable.

What income is exempt?

In the UAE, certain types of income are exempt from Corporate Tax, including:

1. Dividends and Capital Gains: Income from dividends and capital gains earned from qualifying shareholdings.
2. Foreign Branch Profits: Profits earned from foreign branches, subject to meeting specific conditions.
3. Intra-group Transactions: Income from transactions between members of a qualifying tax group.
4. Qualifying Charities and Public Benefit Entities: Income of entities that meet the criteria for public benefit status.

These exemptions help to support specific economic activities and entities within the UAE’s tax framework.

What expenses are deductible?

In the UAE, deductible expenses for Corporate Tax purposes typically include costs that are incurred wholly and exclusively for business purposes. These expenses may include:

1. Salaries and wages paid to employees.
2. Rent and utilities for business premises.
3. Business travel and accommodation expenses.
4. Office supplies and equipment.
5. Marketing and advertising costs.
6. Professional and legal fees.
7. Depreciation of fixed assets used in the business.
8. Interest on business loans.

It’s important to maintain proper documentation and records to support these expenses for tax reporting and compliance purposes.

What is the Corporate Tax rate in the UAE?

The UAE has announced that it will implement a federal Corporate Tax starting from June 1, 2023. The standard rate is set at 9% on taxable income exceeding AED 375,000. For taxable income up to AED 375,000, the rate is 0%, aimed at supporting small businesses and startups. Additionally, different rates may apply to multinational corporations under specific conditions as per the UAE’s commitment to the OECD’s Base Erosion and Profit Shifting (BEPS) project.

What is the Withholding Tax rate?

The UAE does not currently impose a Withholding Tax on dividends, interest, royalties, or other payments made to foreign entities. This policy aims to attract foreign investment by ensuring that cross-border payments are not subject to additional taxation. Businesses operating in the UAE can benefit from this favorable tax environment, which supports international trade and investment activities.

When can a Free Zone Person be a Qualifying Free Zone Person?

A Free Zone Person in the UAE can be considered a Qualifying Free Zone Person if they meet specific criteria set by the UAE tax authorities. These criteria typically include:

1. Maintaining Substance Requirements: The business must have adequate physical presence and staff within the free zone.
2. Income Source: The business must earn qualifying income as defined by the regulations.
3. Compliance: The entity must comply with all regulatory requirements, including maintaining proper records and filing accurate tax returns.

Meeting these conditions allows a Free Zone Person to benefit from preferential tax rates or exemptions.

What are Tax Groups, and when can they be formed?

Tax Groups:

• A Tax Group consists of multiple related business entities that consolidate for tax purposes and file a single tax return.

Formation Criteria:

• Entities must be under common control (typically 50% or more ownership).
• Each member must be a resident person or have a permanent establishment in the UAE.
• Entities must not be exempt from Corporate Tax or be a Qualifying Free Zone Person.

Benefits:

• Simplifies tax compliance and administration.
• Allows for the offsetting of losses between group members.

How to calculate the Taxable Income of a Tax Group?

To calculate the taxable income of a Tax Group in the UAE, first aggregate the incomes of all group members. Then, adjust for any intra-group transactions to avoid double counting. Apply all allowable business expense deductions, and consider any income exemptions. The resulting figure, after these adjustments and deductions, will be the taxable income for the Tax Group.

When to register, file, and pay Corporate Tax?

1. When to Register:
   • Businesses must register for Corporate Tax with the Federal Tax Authority (FTA) upon commencement of their business activities.
2. When to File:
   • Corporate Tax returns are typically filed annually. The specific filing deadline will be determined based on the end of the financial year of the business.
3. When to Pay:
   • Corporate Tax payments must be made by the specified deadline, which usually aligns with the filing date of the tax return. This is to ensure compliance and avoid penalties.

Required Actions:

• Maintain Accurate Financial Records: Essential for accurate filing and compliance.
• Monitor FTA Announcements: Stay updated on any changes to deadlines or requirements.
• Consult with Tax Professionals: For guidance on registration, filing, and payment procedures.

1. Maintain Accurate Records: Keep detailed financial records of income, expenses, and transactions.
2. Understand UAE Tax Laws: Familiarize yourself with the UAE Corporate Tax regulations.
3. Register with the Federal Tax Authority (FTA): Ensure your business is registered and obtain a Tax Registration Number (TRN).
4. Implement Accounting Systems: Use robust accounting software for tracking financial activities.
5. Plan for Tax Liabilities: Budget for tax payments and manage tax obligations.
6. Consult with Tax Professionals: Seek expert advice to ensure compliance and optimize tax strategies.
7. Stay Updated: Keep informed about changes in tax laws.

Documents Required:

• Financial Statements: Income statements, balance sheets, and cash flow statements.
• Invoices and Receipts: For all business transactions.
• Payroll Records: Details of employee salaries and wages.
• Bank Statements: Business account statements.
• Contracts and Agreements: Relevant business contracts and agreements.
• Tax Registration Certificate: TRN documentation.

By following these steps and preparing the necessary documents, businesses can effectively manage their Corporate Tax obligations in the UAE.