Explainer: Difference Between VAT and Corporate Tax in UAE

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corporate Tax in UAE

In 2018, when the UAE introduced the VAT (Value add tax), many predicted that next there would be a rate change, just like the neighboring GCC regions. But in June 2023, with the implementation of the corporate tax, the UAE is about to shift into a new landscape of businesses.

Now, if you are a businessman, you must acknowledge your business’s tax obligations in UAE. It could be a value-add tax or corporate tax. This article will clarify the concepts of VAT and corporate tax in UAE and how to tell them apart. Let’s begin!

What is Value-Added Tax (VAT)?

VAT is a consumption tax that is levied on the majority of goods and services that consumers purchase. In a logistics company in Dubai, cash flow is impacted by VAT because it involves collecting taxes on sales and offsetting them with taxes paid on purchases.

The UAE’s VAT rate is 5%, while some products and services are excluded or charged at a rate of 0%. Tourists are eligible for a return of 85% of the VAT they paid on UAE-purchased products. As consumers are the ones who pay the taxes, VAT largely affects them.

What is Corporate Tax in UAE?

Corporate tax is a profit-based tax levied on the net income or profits of an organization. The typical corporate tax rate in UAE is 9%, although businesses with profits of less than Dh375,000 are exempt from this tax. Companies in the UAE pay corporate tax depending on their income, which does not directly impact consumers.

It is applied following the determination of a company’s taxable income; it does not consider cash flow. Net income is used to compute corporate tax after accounting for business-related costs and deductions. The tax has a greater emphasis on enterprises, which affects their bottom line and profitability.

You can also read:

How does VAT and Corporate tax set apart?

Here are the key differences for you to differentiate between the VAT and the corporate tax:

Value Add Tax (VAT)Corporate Tax
CollectionBusinesses collect VAT from customers and send it to the government.Corporations directly pay corporate tax based on their income
Tax BaseVAT is applied to revenue.Corporate tax is levied on profits
InfluenceVAT mostly affects consumers by raising the price of products and services.While corporation tax influences the profitability of logistics companies in the UAE.
Cash FlowVAT businesses must collect and return the tax.Corporate tax has no immediate effect on cash flow
ExclusionsVAT provides exclusions and zero-rated categories.Corporate tax is based on income criteria

How can The Corporate Group (TCG) assist you?

Contact TCG today if you have any questions regarding the VAT or corporate tax in UAE. Our team of experts is here to assist you and provide complete and updated information about laws related to these taxes. At TCG, we provide valuable consultation to help you with business setup and consultancy issues in the UAE.