On 31st January 2022, the UAE’s government announced it would be introducing a new corporate tax. Historically, The United Arab Emirates has not imposed taxes on the profits of corporations except those in a handful of industries such as resource extraction and foreign banks. However, from the financial year beginning on 1st June 2023, many more companies operating in the territory will need to begin paying the new 9% corporate tax rate.
Corporate Tax is a form of direct tax levied on the net income of corporations and other businesses.
All the businesses whose taxable profit (net) is more than 375,000 AED fall under the purview of corporate tax and are required to pay a certain percentage of net profit as corporate tax.
The corporate tax rate is at 9% of the net profit made by the businesses. In order extend support to small businesses and start-ups, the corporate tax rate will be ‘0’ % if the net profit is up to 375,000 AED.
The date of implementing the corporate tax is effective from the financial year starting on or after 1st June 2023.
Given the profit threshold of 375,000 AED, all businesses exceeding the threshold must pay the corporate tax.
However, certain types of business or income are exempt from corporate tax. Below is the list of companies
or income exempt from corporate tax:
-Not applicable to foreign investors who do not carry on business in UAE;
-Corporate tax incentives are currently being offered to free zone businesses that comply with all regulatory
requirements will continue;
-Capital gains and dividends received by UAE businesses from its qualifying shareholdings are exempt from
corporate tax;
-Not applicable on qualifying intragroup transactions and restructurings.
Corporate tax in UAE is calculated at 9% of the net profit shown in the company’s financial statements. The 9 %
corporate tax will be levied only if the taxable net profit exceeds 375,000 AED. In other words, a net profit of up to
3,75,000 AED is taxed at 0%.
For example, If the net profit is 475,000 AED, the corporate tax will be 9,000 AED (475,000-375,000 X 9/100)
The Small Business Relief rule is designed to support start-ups, SMEs and micro businesses in the UAE by
alleviating their corporate tax duties and compliance costs.
Companies will have to pay corporate tax on their annual net profits, while businesses collect VAT from customers
when selling a product or service and then remit it to the government.
IMPORTANT: Businesses that have already registered for VAT will still need to register for corporate tax.
To practise as an independent professional or freelancer in the UAE, you need a professional license, which will automatically bring you under the tax regime.
If you are a freelancer whose annual revenue is over AED 3 million and profit is over AED 375,000, you will likely have to pay the 9% corporate tax for the appropriate income amount unless you qualify for one of the exemptions available.