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Overview of Corporate Tax
Corporate Tax, also referred to as Corporate Income Tax or Business Profits Tax in other jurisdictions, is a direct tax levied on the net income of corporations and businesses.
Who is Subject to Corporate Tax?
- UAE companies and juridical persons incorporated or effectively managed and controlled in the UAE.
- Natural persons (individuals) conducting a Business or Business Activity in the UAE.
- Non-resident juridical persons with a Permanent Establishment in the UAE.
Exemptions from Corporate Tax
Certain businesses and organizations are exempt from Corporate Tax based on their contribution to the UAE's social fabric and economy. These include government entities, government-controlled entities, extractive businesses, non-extractive natural resource businesses, qualifying public benefit entities, and more. Each category has specific conditions that need to be met for exemption.
Residence and Source Basis of Taxation
The UAE's Corporate Tax Law follows the principles of residence and source-based taxation. Resident persons are taxed on income derived from both domestic and foreign sources, while non-resident persons are taxed only on income derived from sources within the UAE.
Determining Resident and Non-Resident Persons
- Resident Persons: Companies incorporated in the UAE, foreign companies effectively managed and controlled in the UAE, and natural persons conducting business activities in the UAE.
- Non-Resident Persons: Juridical persons without residency in the UAE but with a Permanent Establishment in the UAE or those deriving state-sourced income.
Permanent Establishment
The concept of Permanent Establishment determines if and when a foreign person has established sufficient presence in the UAE to be subject to Corporate Tax. The definition aligns with international tax law standards and considers factors outlined in the Corporate Tax Law and any relevant bilateral tax agreements.
Calculation of Taxable Income
Taxable Income is calculated based on a Taxable Person's accounting income, with necessary adjustments. Certain types of income and expenditures are exempt or partially deductible, respectively.
Corporate Tax Rates
The headline rate of Corporate Tax is 9% on Taxable Income exceeding AED 375,000. Taxable Income below this threshold is subject to a 0% rate. Qualifying Free Zone Persons can benefit from a 0% rate on their Qualifying Income, while non-qualifying income is taxed at 9%.
Withholding Tax
Certain UAE-sourced income paid to non-residents may be subject to a 0% withholding tax. No withholding tax is applicable to transactions between UAE resident persons.
Qualifying Free Zone Persons
Qualifying Free Zone Persons can avail of the preferential Corporate Tax rate of 0% on their Qualifying Income by meeting specific conditions related to substance, income, transfer pricing, and not making an election for regular Corporate Tax.
Tax Groups
Two or more Taxable Persons meeting certain conditions can apply to form a Tax Group, treated as a single entity for Corporate Tax purposes. The parent company must own at least 95% of the share capital, voting rights, profits, and net assets of its subsidiaries.
Registration, Filing, and Payment
All Taxable Persons, including Free Zone Persons, must register for Corporate Tax and obtain a Corporate Tax Registration Number. Corporate Tax returns must be filed within 9 months from the end of the Tax Period, with associated payments.
Preparing for Corporate Tax
Businesses can prepare for Corporate Tax by reading the Corporate Tax Law here
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