The United Arab Emirates (UAE) has long been recognized as a major international commercial hub, primarily due to its attractive tax-free environment. However, recent changes to the tax landscape are expected to significantly impact businesses operating within the nation.

On June 1, 2023, the UAE implemented a federal corporate tax as part of its broader efforts to diversify its economy and comply with international tax standards.

This article will explore the key features of the new UAE corporate tax and provide strategies for businesses to maintain compliance in this evolving environment.

Overview of the New Corporate Tax

Businesses in the UAE are subject to corporate tax starting from the financial year ending on or after June 1, 2023. Here’s a breakdown of the tax rates:

• 0% tax rate: Applicable to companies with annual profits up to AED 375,000.
• 9% tax rate: Applicable to profits exceeding AED 375,000.
• 15% tax rate: Applicable to large multinational corporations that meet specific criteria outlined in Pillar Two of the OECD’s regulations.

This tiered structure ensures that while major multinational corporations and firms with profits over AED 375,000 face higher taxes, smaller businesses benefit from a 0% tax rate.

Definition of Taxable Persons 

The UAE Corporate Tax applies broadly to three categories:

• UAE-incorporated companies or juridical persons effectively managed in the UAE.
• Natural persons conducting specified business activities as per Cabinet Decision.
• Non-resident juridical persons with a permanent establishment in the UAE.

Threshold for Natural Persons

Natural persons conducting business activities whose annual turnover exceeds AED 1 million within a Gregorian calendar year starting January 1, 2024, must register for corporate tax. 

Registration must be completed no later than March 31 of the following year. Non-compliance will result in an administrative penalty of AED 10,000 imposed by the Federal Tax Authority.

Who Must Pay Corporate Tax in UAE

The following entities are required to pay corporate tax in the UAE:

• Mainland enterprises: Businesses registered in Dubai, Abu Dhabi, or any other emirate.
• Free zone entities: Tax exemptions are available for businesses operating in free zones, provided they meet specific requirements.
• Foreign entities with income sourced in the UAE: Even businesses without a physical presence may be subject to taxation on revenue earned within the UAE.

Process of Corporate Tax Registration in UAE

1. Understand Your Eligibility

Ensure your business qualifies for corporate tax registration. This includes:

• Companies based in the mainland UAE or free zones.
• Revenue originating from non-resident entities operating in the UAE.
• Individuals conducting business with a valid trade license.

2. Gather Required Documents

• Details of your company’s trade license.
• Certificates of business registration (if applicable).
• Memorandum of Association (MOA) or Articles of Association (AOA).
• Copies of shareholders’ and business owners’ Emirates IDs and passports.
• Proof of financial statements or income earned.
• Contact details, including email and phone number.

3. Register on the FTA Portal

Moreover, businesses can complete corporate tax registration through EmiraTax—the Federal Tax Authority’s digital portal available around-the-clock—or at various government service centers (Tas’heel Centres) across the UAE.

Corporate Tax Filing in UAE

After registration, businesses must prioritize accurate recordkeeping and timely submission of corporate tax returns. These returns should detail taxable income and deductions while ensuring compliance with UAE regulations.

Professional advisory services can help ensure accuracy during preparation and submission, minimizing penalties such as the AED 10,000 fine for non-compliance. Businesses may also consult corporate tax advisory firms in the UAE for expert guidance. 

Deductibility of Expenses

Businesses must adhere to specific limitations on expense deductibility as outlined by the Ministry of Finance:

Corporate Tax Filing Deadlines in UAE

Corporate tax filing deadlines vary depending on a company’s fiscal year. Below is a summary:

1. For Companies Formed in 2023

Initially, companies incorporated in June 2023 had to submit their first corporate tax return by September 30, 2024. However, this deadline was extended to December 31, 2024, allowing more time for adaptation to new regulations.

2. General Filing Deadlines

For companies following a calendar fiscal year:

• Fiscal Year: January 1, 2024 – December 31, 2024
• Filing Deadline: September 30, 2025

For companies with fiscal years starting April:

• Fiscal Year: April 1, 2024 – March 31, 2025
• Filing Deadline: December 31, 2025

3. For Non-Calendar Fiscal Years

Different deadlines apply for non-calendar fiscal years:

• Fiscal Year: June 1, 2023 – May 31, 2024
• Filing Period: June 1, 2024 – February 28, 2025

This organized timeline helps businesses adapt to new rules while meeting their obligations.

Penalty for Late Registration

Failure to register or file corporate tax returns by specified deadlines will result in administrative penalties. For instance, failure to register by the required deadline incurs an administrative penalty of AED 10,000.

The Future of Corporate Tax in the UAE

The introduction of corporate tax marks a new era for the UAE’s economic framework. While this shift may seem significant, it aligns with the nation’s goals to modernize its economy and adhere to global tax standards.

Despite these changes, the UAE remains an attractive destination for businesses due to its focus on international investment and exemptions for specific sectors like free zone enterprises.

Double Taxation Treaties and International Cooperation

The UAE maintains an extensive network of double taxation treaties designed to prevent income from being taxed twice. These treaties facilitate international trade and investment, reinforcing the UAE’s position as a global business hub.

Conclusion

The introduction of corporate tax in the UAE signifies a substantial transformation in its business landscape. While larger enterprises face a standard rate of up to 9%, smaller businesses benefit from protections such as exemptions for SMEs and industries operating within free zones.

To remain competitive under this new system, businesses must carefully navigate compliance requirements while adapting their strategies accordingly.

Book your free consultation call today with the experts of JSB Incorporation to learn more.