Register for Corporate Tax:
Starting from the first financial year beginning on or after June 1, 2023, corporate tax will be applicable in the UAE. All companies, including those in free zones, are required to register for corporate income tax, regardless of their existing VAT registration.
Companies are required to register using the EmaraTax portal on the FTA’s website. The EmaraTax platform is designed based on international best practices to make tax registration, return filing, and payment processes.
All documents will need to be uploaded ontot he platform to get approval and receive a Tax Registration Number (TRN) for corporate income tax. Entities looking to form a Corporate Tax Group should register individually, obtain a Tax Registration Number, and later apply to form a Corporate Tax Group, as announced by the FTA
The FTA emphasizes the importance of providing precise shareholding percentages, aligning the incorporation date with the company’s commencement date as per the Memorandum of Association (MOA), and specifying the appropriate tax period for the entity.
Here are some important pointers you should know with regards to Corporate Tax:
Keep proper accounting records.
Maintaining accurate accounting records is a requirement under UAE’s corporate tax law. Companies need to keep specific records as outlined by the law.
Professional teams can assist in ensuring that accounting and bookkeeping practices comply with the regulations.
File a corporate tax submission with the Federal Tax Authority (FTA)
After the conclusion of the first taxable period, companies must submit their corporate tax returns to the Federal Tax Authority (FTA). This submission is mandatory, even if a company qualifies for an exemption or tax relief.
Corporate tax rates in the UAE
The UAE corporate tax rates are structured into three tiers:
- Tier 1: A 0 percent tax rate applies to companies with annual net profits up to AED 375,000.
- Tier 2: Companies with profits exceeding AED 375,000 are subject to a 9 percent tax rate.
- Tier 3: Large multinational companies follow different tax rates, which are determined based on OECD Pillar Two guidelines.
Corporate Tax Status for Free Zone Businesses
Contrary to common belief, free zone companies are not automatically exempt from corporate income tax. Exemption eligibility depends on the classification as a Qualifying Free Zone Person, meeting specific criteria such as maintaining sufficient substance, earning qualifying income, and adhering to transfer pricing requirements.
Small Business Relief Rule
Businesses with revenue below AED 3 million per tax period qualify for relief, making them exempt from corporate income tax.
Calculation of Taxable Profit
Taxable profit is computed by deducting business-related expenses from revenue. Specific rules apply to expenses like salaries, interest, entertainment, and foreign branches.
Distinction Between Corporate Tax and VAT
Corporate income tax is levied on annual net profits, whereas VAT is collected from customers during sales transactions. It’s important to note that existing VAT-registered businesses are also required to register for corporate income tax.
Administrative Penalties and Updates for Corporate Tax Compliance
Administrative penalties for violations of corporate tax law will be applicable starting August 1, 2023.
Penalties Range
Penalties for non-compliance vary from AED 500 to AED 20,000. They apply to failures such as not maintaining required records, neglecting to submit data to the Federal Tax Authority (FTA), failing to file tax returns, not settling payable tax, and submitting incorrect tax returns.
FTA Awareness Campaign
The FTA has initiated a comprehensive awareness campaign to educate the UAE’s business community about corporate income tax. The campaign encompasses awareness sessions, workshops, and webinars that delve into the Corporate Tax Law and processes, encouraging self-compliance.
Dedicated Awareness Platform
Since its launch in June, a dedicated awareness platform continues to provide knowledge and support to taxpayers and the business community.
Virtual Workshops on Corporate Tax Registration
Virtual workshops in both Arabic and English focus on ‘Corporate Tax Registration.’ They cover crucial topics such as creating a new user profile on the EmaraTax portal, required documents, processing applications, and issuing a UAE Corporate Tax Registration Number.