Tax rate and Income Threshold
- The standard rate for corporate tax in UAE is 9% on taxable income exceeding AED 375,000.
- Income up to AED 375,000 is tax-free to promote small businesses and startups
- All multinational enterprises (MNEs) that meet the criteria of Pillar 2 within the BEPS 2.0 framework (specifically, those with consolidated global revenues exceeding AED 3.15 billion) will be subject to varying rates in accordance with the OECD's Base Erosion and Profit-Sharing guidelines
Basis of taxation
- A Resident entity would be subject to Corporate Tax on global taxable income.
- A resident natural person in the United Arab Emirates is liable for Corporate Tax on income earned both within and outside the UAE, provided that such income pertains to business activities conducted by the individual within the UAE
- Entities that are not residents of the United Arab Emirates will be liable for corporate
tax in the UAE on the following categories of income:
- Taxable income associated with the Permanent Establishment (PE) of a nonresident entity in the United Arab Emirates
- Income generated in the United Arab Emirates that is not associated to the non-resident's permanent establishment in the UAE
- Taxable income associated with the nexus of a non-resident within the United Arab Emirates
- The following categories shall be classified as income sourced from UAE:
- If it is acquired from a UAE resident
- If it is obtained from a non-resident in connection with their PE in the
- If it is derived or accrued from assets located, activities performed, capital invested, rights used, or services performed in the UAE
- The concept of PE closely aligns with the provisions outlined in the Organization for Economic Co-operation and Development Model (OECD) Tax Convention
Compliances for Corporate tax in UAE
Corporate tax registration
This is the process that businesses must follow to officially register with the Federal Tax Authority (FTA) to comply with the corporate tax laws in UAE.
- The UAE mandates that all businesses, including Free Zone and mainland entities, register for Corporate Tax regardless of their taxable income, except for certain sectors and free zones that meet specific conditions.
- A Natural Person is subject to Corporate Tax Registration only if:
- They Conduct Business or Business Activity in the UAE; and
- Total Turnover derived from Business or Business Activities exceeds AED 1 million within the calendar year.
File Corporate Tax Returns
- Corporate tax return filing in the UAE involves submitting a comprehensive report outlining a company's income and expenses to the FTA authority
- Corporate Tax Return Filing is filed by the Taxable Person for a specified tax period, providing details regarding corporate tax liability and payments. It is imperative to file corporate tax return within the specified timeframe as stipulated by the Corporate Tax Law, i.e., the Taxable person must file their annual tax returns and make payments within nine months from the end of their financial year.
- The standard corporate tax rate is 9% on taxable income exceeding AED 375,000.
Corporate tax Deregistration
Deregistration is a significant process because it ensures that the company is no longer subject to corporate tax filing or payment obligations. If you're considering Corporate Tax Deregistration and need assistance, corporate tax advisors can provide valuable insights into the steps involved.
- This process allows businesses to formally remove themselves from the UAE corporate tax system taxes. It is the responsibility of The Federal Tax Authority (FTA) to oversee and regulate the process of corporate tax deregistration in the UAE.
- Through the EmaraTax portal, which is an online platform for tax-related services provided by the FTA, the process of deregistration can be initiated
- A natural person shall be required to apply for the Corporate Tax deregistration within 3 months from the termination of the business or business activity. A juridical person is required to file the Corporate Tax deregistration application with the authority within 3 months from when the entity ceases to exist or in the case of liquidation, dissolution, or other reasons.
Transfer Pricing
As part of the UAE's efforts to align with international tax standards, the Transfer Pricing provisions have been introduced under Corporate Tax in UAE:
- Transfer Pricing refers to the rules governing the pricing of transactions between related entities (e.g., between a parent company and its subsidiaries).
- The law requires that related parties conduct transactions according to the arm's length principle. This means that transactions should be priced as if they were conducted between unrelated entities in an open market.
- Businesses must keep Transfer Pricing documentation as per OECD Guidelines that proves their transfer pricing practices comply with the arm's length principle. This documentation must be available to the UAE tax authorities upon request.
- International Compliance: The UAE's transfer pricing rules are consistent with OECD guidelines to ensure global compatibility.
Penalty
If the Registration application for Corporate Tax in UAE is not submitted by the due date, a Fixed Administrative penalty of AED 10,000 will be charged. Failure to file corporate tax return by the designated deadline will result in a penalty of AED 500 per month for the initial 12 months. Following the completion of this 12-month period, the penalty will increase to AED 1,000 per month, in addition to 14% of the Corporate Tax Liability, if applicable.