What is Corporation tax in the UAE?
Corporate Tax, also known as Corporate Income Tax or Business Profits Tax, is a direct tax imposed on the net profits of corporations and businesses operating in the UAE. With the country’s thriving economy, it is essential for businesses and individuals to understand the implications of Corporate Tax and who is subject to it or exempt from it.
Corporate Tax will be levied at a headline rate of 9% on Taxable Income exceeding AED 375,000. Taxable Income below this threshold will be subject to a 0% rate of Corporate Tax.
Which UAE companies are subject to Corporate Tax?
Those Subject to Corporate Tax in the UAE are the following entities:
- UAE-based companies and legal entities that are established or managed and controlled in the UAE
- Individuals engaging in business activities in the UAE as per a cabinet decision to be issued later
- Non-resident legal entities with a permanent establishment in the UAE, including entities located in UAE free zones
- Non-resident entities without a permanent establishment in the UAE or earning UAE-sourced income unrelated to the permanent establishment may be subject to Withholding Tax at a rate of 0%.
Which companies are exempt from Corporate Tax?
An often asked question is are UAE Free zone companies exempt from Corporate tax? or are foreign owned companies exempt from UAE corporate tax? In fact, there are several exempt organizations due to their importance to the country’s economy and social fabric. These include:
- Government entities and government-controlled entities specified in a cabinet decision
- Extractive and non-extractive natural resource businesses subject to certain conditions
- Qualifying public benefit entities such as NGOs and PBOs listed in a cabinet decision
- Public (Government run) or private pension and social security funds.
- Qualifying investment funds
What is the Taxable Basis for Corporate Tax in the UAE?
Corporate Tax in the UAE is imposed based on residency and source, similar to most countries’ tax regimes. The applicable basis of taxation depends on the classification of the taxable person:
- Resident Persons, including companies and legal entities incorporated or established under UAE law and foreign entities effectively managed and controlled in the UAE, are taxed on income from both domestic and foreign sources.
- Non-Resident Persons, including entities with a permanent establishment in the UAE or earning state-sourced income, are taxed only on taxable income attributable to their permanent establishment.
- Natural persons are subject to Corporate Tax as Resident Persons on income from both domestic and foreign sources only if derived from business activities conducted in the UAE.
What are Resident and Non-Resident Persons in the UAE for Tax purposes?
A Resident Person in the UAE is defined as a company or legal entity incorporated or established under UAE law or a foreign entity effectively managed and controlled in the UAE. Natural persons are also considered Resident Persons if they derive income from business activities conducted in the UAE. On the other hand, a Non-Resident Person in the UAE is a legal entity that is not considered a Resident Person and either has a permanent establishment in the UAE or derives state-sourced income, subject to Corporate Tax on taxable income attributable to their permanent establishment.
In conclusion, understanding Corporate Tax in the UAE is crucial for businesses and individuals operating in the country. It is essential to know who is subject to this tax, who is exempt, and the implications for resident and non-resident entities. Staying informed and up-to-date on the tax laws and regulations in the UAE will help ensure compliance and avoid any potential penalties or fines.
