What is Corporate Income Tax in the UAE?
Corporate tax is a direct federal tax imposed on the profit of most businesses, corporations, and other entities operating with a commercial license in the UAE. The federal government has imposed a 9% tax effective from June 1st, 2023 on a taxable income of AED 375,000 or more.
When will the UAE CIT tax be effective?
For taxable persons, their financial year starting on of after 1st June 2023 will be subject to CIT.
Therefore if businesses have their financial year starting on 1st July, CIT will be effective from the financial year starting on 1st July 2023 on their taxable income.
However, for businesses that have their financial year starting on 1 January the first financial year subject to CIT will commence on 1st January 2024.
Do individuals who are freelancing have to pay CIT?
yes, freelancers that conduct a business or a business activity in the UAE will be subject to CIT.
However freelances and the self employed in general do benefit from top line relief of AED 1 million amd bottom line relief of AED 375,000.
In addition, freelancers and indeed most businesses will also benefit the small business relief for tax periods up to and including 31st December 2026.
Are free zone companies exempt from the 2023 corporate tax?
A freezone company is not exempt from CIT, it however can benefit from a 0% CIT rate as long as it is a qualifying freezone entity.
For a freezone entity to be a qualifying freezone entity is meest all the criteria as per article 18 of the decree law and the recently announced cabinet and ministerial decisions no 44 and 139 respectively.
Will the federal government provide UAE CIT relief to small businesses, and who would be eligible?
Yes, small businesses (except A Constituent Company of a Multinational Enterprises Group as defined in Cabinet Decision No. 44 and Qualifying Free Zone Person) whose revenue in each tax period up to and including 31 December 2026 does not exceed AED 3 million.
Furthermore, A Taxable Person shall not be able to elect to apply the Small Business Relief if their Revenue in any relevant or previous Tax Period has exceeded the threshold of AED 3 million.
Who is exempt from UAE CT?
The following persons are exempt from UAE CT, either automatically or by way of application:
- The UAE Federal and Emirate Governments and their departments, authorities and other public institutions;
- Wholly Government-owned companies that carry out a mandated activity, and that are listed in a Cabinet Decision;
- Businesses engaged in the extraction of UAE natural resources and related non-extractive activities that are subject to Emirate-level taxation after meeting certain condition
- Businesses registered in Free Trade Zones are exempted given that they comply with all the regulatory requirements, and they don’t operate businesses with Mainland UAE
- Public Benefit Entities that are listed in a Cabinet Decision;
- Investment Funds that meet the prescribed conditions;
- Public or private pension or social security funds that meet certain conditions; and
- UAE juridical persons that are wholly-owned and controlled by certain exempted entities after meeting certain conditions
- Individuals’ income, unless the employment income comes from business/commercial/professional engagement, freelancing, or any other economic activities that must have a permit or must be licensed
- Individuals’ income from real estate investments, as long as these investments are done in a personal capacity and not as a business which requires a commercial license
- Individuals’ income, capital gains and dividends earned from personal investments in shares and securities
- Individuals’ income and interest gained from deposit and savings accounts
How is Corporate Income Tax Calculated?
CIT is payable on a taxable person’s taxable income.
The taxable income for a Tax Period is the accounting net profit (or loss) of the business, after making adjustments for certain items as defined in the Corporate Tax Law.
For UAE CT purposes, the accounting net profit should be prepared in accordance with accounting standards accepted in the UAE. International Financial Reporting Standards (IFRS) is the most frequently used accounting standard in the UAE.
Will I have to pay UAE CT alongside VAT in the UAE?
If you are a registered business for VAT, you will have to pay VAT and CIT separately. If your business is not VAT registered, you may still have to pay CIT.
What should I be doing to prepare for UAE CT?
To assess what the UAE CIT regime means for your business, as a starting point, you should:
Read the Corporate Tax Law and the supporting information available on the websites of the Ministry of Finance and the Federal Tax Authority.
Use the available information to determine whether your business will be subject to UAE CT and if so, from what date.
Understand the requirements for your business under the Corporate Tax Law, including, for example:
- Whether your business needs to register for UAE CT.
- What is the accounting / Tax Period for your business.
- By when your business would need to file a UAE CT return.
- What elections or applications can or should your business make for UAE CT purposes.
- How UAE CT may impact your business’ obligations and liabilities under contracts with customers and suppliers.
- What financial information and records your business will need to keep for UAE CT purposes.
Regularly check the websites of the Ministry of Finance and the Federal Tax Authority for further information and guidance on the UAE CT regime.
Invest in training your team with Kaplan’s corporate tax course UAE which will provide a deep understanding of the legislation and tips and strategies for compliance and maximizing profits.
What records should I keep for UAE CIT purposes?
Taxpayers are expected to prepare and maintain financial statements for the purposes of calculating their taxable income and should maintain all documents and records that support the information in the CIT return or in any other filing made with the Authority.
Exempt persons are required to maintain all records to support their exempt status.
How long must I keep my records for UAE CIT purposes?
Records and documents should be kept for at least seven years following the end of the relevant Tax Period.
Will I need to submit my financial statements to the Federal Tax Authority?
The Federal Tax Authority may request for the financial statements to be submitted alongside the CT tax return, or for the financial statements to be provided upon request.
Are there any consequences for non-compliance under the UAE CT regime?
Yes, as per the recently released cabinet decision no 75 of 2023, penalties and fines will be imposed on taxable persons.
For example if a taxable person fails to submit a tax return within 9 months from the end of the tax period, the penalty will be
a.. 500 for each month, or part thereof, for the first twelve months afer the latest filing date.
b.. 1,000 for each month, or part thereof, from the thirteenth month onwards.
If you are interested in learning more, Kaplan offers an internationally certified Diploma in Corporate Income Tax. This program is available in both classroom and online formats, and it is offered in English and Arabic. By enrolling in this corporate tax preparation course will have the opportunity to learn from experienced tax experts and benefit from valuable study materials and resources. Speak to our program advisers today!