The UAE Corporate Tax Law has brought significant changes to the business environment in the United Arab Emirates. Effective from June 2023, the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses was introduced, marking a milestone for the UAE as it continues to enhance its regulatory framework to align with international standards. This move is part of the UAE’s efforts to diversify its economy and maintain its competitive edge while ensuring that businesses contribute fairly to the national revenue.
At Risians Accounting, we are committed to helping businesses navigate these new tax regulations. In this article, we will break down the key aspects of the UAE Corporate Tax Law, including its scope, applicability, and the regulations that companies need to comply with to avoid penalties and ensure smooth tax filings.
Introduction to the UAE Corporate Tax Law
The UAE Corporate Tax Law was introduced to establish a federal tax system for businesses operating within the country. While the UAE had long been known for its tax-free environment, this new law is aimed at creating a more structured financial system, improving transparency, and ensuring compliance with international tax standards such as OECD’s Base Erosion and Profit Shifting (BEPS) framework.
Corporate tax is now levied on the net income of corporations, and businesses are required to comply with specific guidelines related to tax registration, filings, and the preparation of financial statements.
Key Features of the UAE Corporate Tax Law
Here are the primary aspects of the law that every business must be aware of:
1. Corporate Tax Rate
The UAE introduced a tiered approach to corporate tax:
- 0% on taxable income up to AED 375,000.
- 9% on taxable income exceeding AED 375,000.
This structure aims to support small and medium-sized enterprises (SMEs) while imposing a reasonable tax burden on larger corporations. The UAE corporate tax rate remains competitive globally, attracting businesses to establish their presence in the country.
Risians Accounting Tip: Even if your business falls under the 0% tax bracket, you are still required to file your corporate tax returns. Our experts can assist with ensuring proper documentation and compliance.
2. Who Is Subject to Corporate Tax?
The corporate tax law applies to both resident and non-resident entities conducting business in the UAE. This includes:
- Companies incorporated in the UAE.
- Foreign companies that have a Permanent Establishment (PE) in the UAE or generate income from the UAE.
- Free zone businesses, which may continue to enjoy their 0% tax rate, provided they meet specific regulatory requirements.
However, certain exemptions apply:
- Businesses involved in the extraction of natural resources, as they are already subject to existing Emirate-level taxation.
- Government entities, government-controlled entities, and qualifying public benefit organizations.
- Investment funds and pensions, provided they meet qualifying conditions.
Risians Accounting Tip: Understanding whether your company is subject to UAE corporate tax is crucial. We provide consultation to determine your tax obligations, helping you classify your business correctly under the law.
3. Taxable Income Calculation
The corporate tax is levied on taxable income, which is derived from the accounting net profit of the business. This is based on financial statements prepared by International Financial Reporting Standards (IFRS). The net profit is then adjusted for specific items such as:
- Non-deductible expenses.
- Exempt income.
- Tax reliefs.
For example, income generated from dividends and capital gains from qualifying shareholdings may be exempt from taxation.
It’s important for businesses to accurately calculate their taxable income by ensuring their financial records are compliant with both local regulations and international accounting standards.
Risians Accounting Tip: At Risians Accounting, we provide end-to-end accounting services to ensure your financial statements are in line with IFRS and tax regulations, making the taxable income calculation seamless.
4. Transfer Pricing Regulations
A critical part of the UAE Corporate Tax Law is the introduction of Transfer Pricing rules, which aim to ensure that transactions between related parties are conducted at arm’s length. This means that pricing for such transactions should be the same as if the parties were unrelated, ensuring no artificial manipulation of profits between entities.
Businesses that engage in related-party transactions must maintain proper documentation, including:
- Master Files: Providing an overview of the global business.
- Local Files: Containing information on transactions specific to the UAE entity.
Failure to comply with transfer pricing regulations can result in significant penalties.
Risians Accounting Tip: We specialize in transfer pricing compliance, helping businesses manage their related-party transactions and maintain the necessary documentation to avoid penalties.
5. Filing and Compliance Requirements
The UAE corporate tax law outlines clear guidelines for tax registration, filing, and payments:
- Tax Registration: All businesses subject to corporate tax must register with the Federal Tax Authority (FTA).
- Tax Filing: Corporate tax returns must be filed electronically, and the tax year generally aligns with the financial year of the business.
- Payment: The tax must be paid within nine months of the end of the relevant financial year.
Moreover, businesses are required to maintain accurate records and supporting documents for a minimum of seven years from the end of the relevant tax period.
Risians Accounting Tip: Filing errors or missing the tax payment deadlines can lead to penalties. Our team ensures that your tax returns are filed accurately and on time, with all necessary records maintained.
6. Penalties for Non-Compliance
Non-compliance with the UAE Corporate Tax Law can result in substantial penalties. These include:
- Failure to register for corporate tax: Penalties may be imposed if a business fails to register within the prescribed timeframe.
- Late filing of tax returns: Companies that do not file their returns on time may face fines.
- Incorrect tax filing: Filing inaccurate information or failing to maintain proper documentation can lead to additional penalties.
It is important to understand these consequences and ensure your business remains compliant with the law at all times.
Risians Accounting Tip: We offer comprehensive tax compliance services to help businesses avoid penalties and keep their tax affairs in order.
7. Free Zone Companies
Free zone entities can continue to benefit from a 0% corporate tax rate on their qualifying income, provided they meet the following conditions:
- The business must maintain adequate substance in the UAE.
- It must comply with all regulatory requirements of the free zone authority.
- It cannot conduct business with mainland UAE entities, except under limited circumstances.
Non-qualifying income for free zone businesses will be taxed at the standard 9% rate.
Risians Accounting Tip: Navigating the regulations for free zone companies can be complex. Our team provides expert advice on maintaining compliance while benefiting from available tax incentives.
Conclusion
The introduction of the UAE Corporate Tax Law marks a significant development in the country’s regulatory landscape. While the law has brought new obligations for businesses, it also provides opportunities for companies to streamline their financial processes and align with international tax standards. At Risians Accounting, we are dedicated to helping businesses in the UAE navigate these regulations, ensuring they remain compliant while optimizing their tax position.
From determining taxable income to managing transfer pricing and filing tax returns, our team offers comprehensive support to ensure your business is prepared for the UAE’s new corporate tax regime. Contact Risians Accounting today to learn more about how we can assist your business in meeting its corporate tax obligations effectively.