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CORPORATE TAX

Understanding corporate tax in the UAE 

Corporate tax, also referred to as business profit tax or corporate income tax, is a direct tax imposed on the net profit or income of corporations and other business entities. Unlike many other countries, the UAE recently implemented federal corporate tax, marking a significant change in its tax system. Companies are mandated by the government to pay a portion of their profits as tax. To gain a better understanding of corporation taxation, individuals can enroll in various workshops, educational programs, or courses tailored for corporate tax training. Additionally, seeking assistance from reputable accounting and bookkeeping firms like Smart book accounting and bookkeeping in the UAE can be beneficial.

Applicability of corporate tax in UAE  

As per the corporate tax laws in the UAE, companies that have a taxable net profit surpassing 375,000 AED are required to settle this tax. Nevertheless, there exists a clause to aid small enterprises and newly established businesses. Entities with profits of 375,000 AED or less are not subject to corporate tax. This initiative is designed to promote entrepreneurship within the SME industry.

Also, the tax applies to all commercial activities and businesses, except for: 
 

• UAE government-controlled entities  
• UAE government entities  
• Businesses engaged in the extractive businesses in UAE   
• Businesses engaged in non-extractive natural resource business in the UAE 

Corporate tax rates in the UAE  

The Ministry of Finance in the UAE determines the corporate tax rate, which stands at 9% of the net profit. Consequently, if companies surpass the tax-exempt threshold in terms of net profit, they will be liable to pay a 9% tax on their earnings. Nevertheless, the corporate tax rate remains highly competitive when compared to international benchmarks, thus maintaining the UAE’s appeal to business.

Natural person under corporate tax

The concept of a natural person pertains to a living individual of any age, whether they reside in the UAE or elsewhere. In cases of incapacitated persons or minors, their tax responsibilities will be carried out by their legal guardians.

Corporate tax Law and natural persons  

To create a level playing field between incorporated businesses and unincorporated businesses run by individuals, the corporate tax law in the UAE is applicable to natural persons who are engaged in business activities or have a business presence in the country. This includes individuals who have a Permanent Establishment in the UAE or earn income that is sourced from the state, such as income accrued or derived from the UAE. Furthermore, there are certain types of income that are always exempt from corporate tax for natural persons. This includes personal investment income, employment income, and real estate investment income.

Now, let us delve into some of the important factors to consider in relation to this matter.

Key considerations  

The key factors to determine if a natural person will be liable for Corporate Tax are as follows:       

• According to corporate tax legislation, a natural person engaging in business or business activities in the UAE is considered a taxable and resident individual.
• Corporate tax is applicable to a natural person's business if the total turnover generated from business activities in the UAE surpasses AED 1 million in a Gregorian calendar year.
• Income from personal investments, wages, and real estate investments is not classified as business-related income and is excluded when calculating turnover.

Therefore, it is not subject to corporate tax, regardless of the amount.

• If the turnover from business activities in the UAE exceeds AED 1 million in a Gregorian calendar year, the natural person must adhere to the Corporate Tax Law requirements.

This includes filing corporate tax returns, fulfilling corporate tax obligations with the FTA, and settling corporate tax dues.

Natural persons: resident and non-resident 

For individuals, their physical residence in the UAE, whether through citizenship or a residency visa, does not determine their status as resident persons for corporate tax purposes or the taxability of their income. The following approach is taken:

1. If a natural person resides in the UAE and engages in business activities or conducts business within the UAE, they are considered a resident person. As a result, they are subject to the key considerations mentioned earlier and are considered a taxable person for corporate tax purposes.

1. Conversely, if a natural person resides outside the UAE, such as having their home in another country, they can still be considered a resident person for corporate tax purposes if they conduct business in the UAE. The same key considerations apply in this case.

Additionally, if the natural person has not invoked the application of a relevant Double Taxation Agreement, any individual conducting business in the UAE will be considered a resident person under the Corporate Tax Law.

Corporate Tax Registration

All individuals, including those working in free zones, are required to register for corporate tax and obtain a tax registration number for corporate tax before deadline specified by FTA. This applies to all companies, regardless of whether they are liable to pay taxes or not and make a sale or not in a particular tax period.

Broadly, Corporate Tax applies to the following “Taxable Persons”:

1. UAE companies and all juridical persons that are incorporated or effectively managed and controlled in the UAE.
2. Juridical persons established in a UAE Free Zone.
3. Natural persons (individuals) who conduct a taxable Business or Business Activity in the UAE and Total Turnover derived from Business or Business Activities conducted in the UAE exceeds AED 1 million within a Gregorian calendar year.
4. Non-resident persons that

• Have a Permanent Establishment in the UAE
• Have a nexus in the UAE arising from earning income from any Immovable Property in the UAE.  [Foreign Legal Entity]
• Not have a Permanent Establishment in the UAE But earn State Sourced Income.

Conclusion 

In this article, we have covered the topic of corporate tax and the regulations in the UAE. We have also delved into corporate tax for natural persons. If you require assistance, the best corporate tax services providers in the UAE can help you. Smart book accounting and bookkeeping stands out as one of the premier accounting and bookkeeping firms in Dubai, UAE. Our firm has been instrumental in guiding numerous businesses on tax regulations and compliance. By utilizing our corporate tax services, you can ensure that you remain compliant with the law. Our services encompass the following:

1. Experienced And Qualified Tax Advisors

Smart book accounting and bookkeeping boasts a team of experts who possess a deep understanding of the corporate tax landscape in the UAE. They can assist you at every stage of the process.

1. Comprehensive Services

Our firm offers a comprehensive array of corporate tax services, ranging from registration and compliance to filing returns, tax planning, and more.

1. Technology-Driven Solutions

Smart book accounting and bookkeeping leverages cutting-edge technology platforms to streamline your tax procedures and enhance communication.

1. Personalized Approach

We deliver personalized solutions that are tailored to address your specific business requirements and obstacles. Additionally, we offer services such as accounting and bookkeeping, Auditing, Due Diligence audit services, and more.

To learn more about our services, we encourage you to reach out to our experts and contact us today.