Corporate tax meaning refers to the tax imposed on companies’ profits. The United Arab Emirates is one of the countries that has a flourishing economy. It has recently witnessed a significant expansion in investment areas such as tourism, industry, and technology. In order to maintain this development, the United Arab Emirates announced the implementation of a corporate tax. This article will explain the benefits of Corporate tax in the UAE.
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Know the Corporate Tax Meaning
The corporate tax in Dubai is simply the tax imposed by a government on the profits earned by companies. It is calculated after deducting expenses, salaries, and other operational costs from the company’s total revenue.
Corporate tax is also known as corporate income tax, corporation tax, and company tax. Investopedia explains corporate tax meaning as “a tax on the profits of a corporation.” Meaning that “the taxes are paid on a company’s taxable income,” excluding expenses. It is paid annually under the regulations and conditions of the Tax Authority.
Corporate Income Tax Rate
The corporate income tax definition was introduced in the United States of America in 1965. Its rate was 45%, and it was considered the highest corporate tax rate. Currently, the corporate tax rate in the US has reached 12%, which is the lowest rate compared to the rate approved by the Internal Revenue Service (U.S. Taxes) in 2018, where the corporate tax rate was 35%.
As for the United Arab Emirates, the Federal Tax Authority (FTA) announced that the corporate income tax will be applicable on June 1, 2023. The corporate tax rate in the UAE is the lowest in the world at 9% on taxable income, more than AED 375,000. However, the corporate income tax rate is still at 0% on the profit less than AED 375,000.
Benefits of Applying Corporate Tax
a. Sustainable Economic Growth:
The primary way to define company tax is as a source of funds for governments. The government uses the taxes to fund public services, national projects, and investments in many fields such as industry, education, and healthcare. Corporate tax also plays a major role in maintain sustainable economic growth and prevents financial obstacles and problems in the future. To comply with these rules, businesses must understand the requirements for corporate tax registration in UAE, which ensure that companies contribute fairly to the economy. As a result, society benefits from sustainable development and a high standard of living.
b. Provision of Equality:
The corporate income tax provides equality among corporations by paying taxes fairly. This fair distribution of taxes reduces corruption and fraud crimes in society.
c. Investment Expansion:
Corporate income tax definition plays an important role in increasing the rate of investment. When a country establishes a stable tax system, this supports an increase in investments, especially foreign ones. In addition to that, the corporate tax rate plays an essential role in attracting investments. For example, the United Arab Emirates provides the lowest rate at 9%, which encourages investors to invest their money there. As a result, the UAE has a progressive economy.
Corporate Tax Calculation and Deductions
The first step in paying corporate tax is to calculate the company’s taxable income. This is done by identifying the total revenues earned during the financial year and then excluding the expenses that are legally deductible. Taxable income is essentially the profit that remains after subtracting costs directly related to running the business.
Companies are allowed to deduct several types of expenses when determining taxable income. These include employee salaries and benefits, insurance premiums, travel expenses for business purposes, and other necessary operational costs. By deducting these expenses, businesses reduce the amount of income subject to taxation, which helps ensure they only pay tax on their actual profits.
Read More: Business Setup Dubai
The Impact of Corporate Tax in the UAE Economy
The announcement of the corporate tax rate of 9% in the UAE resulted in several positive impacts on the UAE economy:
- Diversification of Investments:
The United Arab Emirates’ economy depends mainly on oil revenues. The application of corporate income tax at 9% on profits more than AED 375,000 attracts foreign investments in different fields such as industry, tourism, and technology. These investments contribute to UAE economic growth. In this way, the UAE takes further steps towards being at the top of global business.
- A New Source of Funds for Government:
Corporate income tax provides a new source of funds for the UAE government. The government funds public services, national projects, and scientific research. It is also used to fund public education, public healthcare and to raise life insurance. All of these improve the quality of life in society and maintain economic growth.
The Role of Alsun for Bookkeeping and Taxation Services:
The accounting firm is the financial partner for companies, ensuring a sound financial infrastructure free of problems. Therefore, you should choose a reliable and accredited accounting firm. Alsun tax and accounting is a leading accounting firm in Dubai that is certified by the Federal Tax Authority in UAE. At Alsun for Bookkeeping and Taxation provides many services, as the following:
- Statement Preparation
- Bookkeeping
- Tax payment planning
- Corporate Tax Services
- VAT Services
- Financial Consulting
Alsun for Bookkeeping and Taxation has professional tax agents and accountants team that provide certified financial services. Our company provides an accurate and reliable service to define company tax for your business, and our tax agents work hard to reduce the burden of the taxes by providing financial advice and solutions.
Conclusion
Alsun Bookkeeping and Taxation helps businesses in the UAE define corporate tax meaning to startups. Our team of professional tax agents in Dubai provides accurate corporate tax payment planning alongside financial consulting to minimize the burden of taxes. For further information about corporate tax meaning, don’t hesitate to contact us.
FAQs
Corporate tax in UAE means the tax is paid annually on the business’s net profit of more than AED 375,000 at a rate of 9%.
Alsun for Bookkeeping and Taxation is a leading accounting firm in Dubai that is certified by the Federal Tax Authority in UAE. It provides many services, such as financial statement preparation, bookkeeping, corporate tax services, and financial consulting.
Companies that have taxable income more than AED 375,000 have to pay corporate income tax at a rate of 9%. However, for companies that have taxable income less than AED 375,000, their corporate income tax rate is still 0%.