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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:

1. The UAE Federal and Emirate Governments and their departments, authorities and other public institutions;
2. Wholly Government-owned companies that carry out a mandated activity, and that are listed in a Cabinet Decision;
3. 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
4. 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
5. Public Benefit Entities that are listed in a Cabinet Decision;
6. Investment Funds that meet the prescribed conditions;
7. Public or private pension or social security funds that meet certain conditions; and
8. UAE juridical persons that are wholly-owned and controlled by certain exempted entities after meeting certain conditions
9. 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
10. 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
11. Individuals’ income, capital gains and dividends earned from personal investments in shares and securities
12. 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! 

1. Determine VAT registration requirements: Assess whether your business meets the criteria for mandatory VAT registration. If your annual taxable supplies exceed the threshold set by the UAE Federal Tax Authority (currently AED 375,000), you must register for VAT.
2. Classify your supplies: Categorize your goods and services based on their VAT treatment. The main classifications are standard-rated supplies (5% VAT), zero-rated supplies (0% VAT), and exempt supplies (no VAT).
3. Calculate taxable value: Determine the value of goods or services on which VAT is applicable. This is typically the selling price or consideration received for the supply of goods or services.
4. Calculate VAT amount: Multiply the taxable value by the applicable VAT rate (5% for standard-rated supplies) to calculate the VAT amount. VAT amount = Taxable value * VAT rate
5. Determine the total invoice amount: Add the VAT amount to the taxable value to calculate the total amount payable by the customer. Total amount = Taxable value + VAT amount
6. Maintain proper records: Keep detailed records of all VAT-related transactions, including sales, purchases, and expenses. Ensure that you have invoices, receipts, and other supporting documents for VAT calculation and reporting purposes.
7. Issue VAT-compliant invoices: Ensure that your invoices meet the requirements set by the UAE Federal Tax Authority. Include all necessary details, such as VAT registration number, VAT amount, and a clear indication of the VAT treatment for each supply.
8. File VAT returns: Prepare and submit VAT returns to the UAE Federal Tax Authority within the specified deadlines. VAT returns typically cover a specific period (e.g., quarterly) and require reporting of VAT collected from customers and VAT paid on purchases.
9. Settle VAT liability: Pay the VAT liability to the UAE Federal Tax Authority within the designated time frame to avoid penalties or interest charges.
10. Conduct periodic VAT audits: Regularly review your VAT processes and documentation to ensure compliance with VAT regulations. Consider engaging tax professionals or consultants to perform VAT audits and provide guidance on adherence to VAT rules.

It’s important for businesses to understand and effectively manage the impact of VAT on their operations. Seeking guidance from experts in VAT regulations can help businesses navigate the complexities of VAT and ensure compliance while minimizing any adverse effects on their operations.

Kaplan offers an internationally certified VAT Diploma in UAE. This VAT course will provide you with a deep understanding of the regulation and provide strategies for tax computation. It is available in both classroom and online formats, and it is offered in English and Arabic. By enrolling in this VAT training, you will have the opportunity to learn from experienced tax experts and benefit from valuable study materials and resources. Speak to our program advisers to know more! 

Value Added Tax (VAT) can have several impacts on businesses. Here are some ways in which VAT can impact businesses:

Financial Impact: VAT imposes an additional cost on businesses as they are required to collect VAT from their customers and remit it to the tax authorities. This can affect cash flow management, especially for businesses with tight profit margins, as they need to allocate funds for VAT payments.

Pricing and Margins: VAT affects pricing strategies and profit margins. Businesses must consider the impact of VAT on their prices to ensure that they cover the cost of VAT while remaining competitive in the market. VAT can also impact profit margins, especially if businesses are unable to pass on the full VAT burden to customers.

Compliance and Administrative Burden: Businesses are responsible for VAT registration, maintaining proper records, issuing VAT-compliant invoices, and filing regular VAT returns. This administrative burden can require additional resources and time, particularly for smaller businesses that may have limited staff or expertise in VAT compliance.

Impact on Sales and Consumer Behaviour: The introduction of VAT can influence consumer behaviour and purchasing decisions. Customers may become more price-sensitive and adjust their spending patterns based on the VAT rate and the resulting price increase. This can impact the demand for certain products or services, potentially affecting sales volumes for businesses.

Competitive Landscape: VAT can impact the competitive dynamics within an industry. Businesses that can efficiently manage VAT and pass on the VAT burden effectively may gain a competitive advantage. Conversely, businesses that struggle with VAT compliance or fail to adjust prices accordingly may face challenges in the market.

Supply Chain Considerations: VAT can impact the supply chain of businesses, particularly for those involved in international trade. Cross-border transactions may involve import and export VAT considerations, which can have implications for customs procedures, documentation requirements, and cash flow management.

It’s important for businesses to understand and effectively manage the impact of VAT on their operations. Seeking guidance from experts in VAT regulations can help businesses navigate the complexities of VAT and ensure compliance while minimizing any adverse effects on their operations.

Kaplan offers an internationally certified VAT Diploma in UAE. This VAT course will provide you with a deep understanding of the regulation and provide strategies for tax computation. It is available in both classroom and online formats, and it is offered in English and Arabic. By enrolling in this VAT training, you will have the opportunity to learn from experienced tax experts and benefit from valuable study materials and resources. Speak to our program advisers to know more!