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Updated Corporate Tax in UAE 2023

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corporate tax in uae 2023

Introduction: History of corporate tax in UAE 2023 

Before 2018, the United Arab Emirates was a free economy with very low tax jurisdiction, and depending solely on companies that extract private fossil fuels to pay 50% tax on revenues. Corporate tax in UAE 2023 first started on 1st January 2018, when VAT (value-added tax) was first introduced to the UAE economy to start a new taxation system.

On 9th of December 2020, the UAE federal authorities released the announcement of Corporate income Taxes (CT) for the very first time. Now, UAE new tax 2023 is set to be applied on all corporations whose annual revenues exceed 375,000 AED. On the other hand, small businesses are liable to another way of income taxation in the UAE.

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Corporate tax in UAE 2023 start date!

On 23rd May 2023, Younis Haji Al Khouri, Undersecretary of the Ministry of Finance before implementing new tax in UAE 2023, said: The three new decisions aim to enhance the resilience of UAE’s economy through Corporate Tax VAT rules to maintain a developmental business function for all sectors”. These 3 decisions are related to new corporate tax regulations that are set to be applied by 1st of June, 2023. 

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UAE federal corporate tax defined

As the Ministry of Finance in UAE clarified that tax rate is various according to the revenues of the business itself. Such that, businesses that don’t exceed a taxable income of 375,000 AED, they won’t charge any taxable rate of (0%). On the other hand, businesses that did exceed a taxable income of 375,000 AED annually, are charged a (9%) tax rate for revenues earned. 

Alongside, large multinational firms in UAE are liable to a different tax rate than the mentioned one above, that means this rate is meant for local companies only.

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UAE income tax 2023 calculation rates

Corporate tax in UAE 2023 is calculated through deriving all deducting expenses from the net profit to have the taxable income. Then adding the 9% tax on the net income to decide the tax rate for specific revenues that should exceed the minimum of 375,000 AED. Let’s take a detailed example from real calculations 👇👇

Real-Life Example on UAE new tax 2023

Mohammed LLP, a commercial trader based in Sharjah, UAE, declared their annual financial statements for 2021. The net profit declared through a fiscal year was 1,000,000 AED that’s eligible for deductions of 75,000. The type of deductions allowed for corporate tax is decided to be made by the relevant authorities.

DetailsAmount
Net Profit (a)1,000,000
Less : All deduction (b)75,000
Net Income (c)925,000
Less : Exempt Amount (d)375,000
Taxable Income (e)550,000
Corporate Tax @9% on (e)49,500

As declared, the net profit from the financial statement is deducted through the corporate rules. Then, the exempted amount of 375,000 is reduced to form the taxable income. Thus, the corporate tax Abdul LLP will be paying is 49,500 AED ( 550,000 @ 9%).

Exemptions to the corporate tax in UAE 2023!

corporate tax in uae 2023

According to the UAE Federal Corporate Tax Authority (FTA), there are some exemptions for businesses who apply to these updated rules in 2023. Based on United Arab Emirates Ministry of Finance, those businesses include:

Automatically exempt

  • Government Entities
  • Government Entities in a Cabinet Decision

Exempt if notified to the UAE Ministry of Finance (MoF)

  • Extractive Businesses.
  • Non-Extractive Natural Resource Businesses.

Exempt if listed in a Cabinet Decision

  • Qualifying Public Benefit Entities.

Exempt if approved by the Federal Tax Authority (FTA)

  • Public retirement stipend and social security funds
  • Qualifying Investment Funds
  • Wholly governmental controlled UAE subsidiaries for a Qualifying Investment Fund, or a public or private social insurance fund.

Aside from applied and exempted corporations of the UAE income tax 2023, small businesses exist to have another system of taxation that was last updated in April 2023. Based on article 21 of the Federal Decree-Law No. 47 of 2022 on the corporate taxes.

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Excluded Businesses from the corporate tax in UAE 2023!

Exemptions are companies who comply with corporate taxes in certain circumstances only. But there’s a whole list of different types of incomes that don’t go along with any restrictions of the new federal corporate tax UAE. These incomes include: 

  • Individual earnings, such as any income from employment, real estate, investments in shares, and other personal income unrelated to a trade or business in the UAE will be exempt from corporate tax.
  • Foreign investors’ earnings as dividends, capital gains, interest, royalties and other investment returns.
  • Qualifying intragroup transactions and restructurings.

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Free Zones Explained

Another exclusion arises from new corporate tax legislations that are assigned for all businesses except those in free zones all around the UAE including the main emirate of free zones  “Dubai”. Arising from this point, calculation rates are the same for all businesses depending on their profits at the end of a fiscal year. 

Talking about businesses that don’t comply with income tax UAE 2023, Free zones act as a real trigger for entrepreneurs to invest in it for more profits and minimal taxable income.

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Free Zones Compliance Taxes

That’s why businesses in free trading zones are required to comply with several tax compliance and reporting obligations, including:

  •  Maintaining convenient financial records: in a way that businesses should implement.
  • Preparing proper financial statements for a whole fiscal year: that should be complied with the International Financial Reporting Standards (IFRS).
  • Filing returns annually: that should be filed with the tax authorities.
  • Renewing licenses: that should be renewed frequently with the relevant authorities on a regular basis.
  • Fulfilling regulatory requirements: Businesses are required to fulfill other regulatory requirements, such as obtaining the necessary permits and licenses.

Hence, it’s always important for entrepreneurs in free zones to check all the latest documentation that needs to be filled every now & then in order not to fail in any penalties, fares, or any other consequences.

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Income tax Dubai 2023

corporate tax in uae 2023

If you don’t know, Dubai has more than half of the free zones existing all over UAE, which explains why entrepreneurs always tend to launch their businesses in Dubai. Because it’s considered one of the tax-free cities around the world.

That’s why the taxation system in Dubai is so complicated and changeable according to different factors. Aside from the income tax rate in UAE, corporate tax Dubai 2023 is implemented differently based on the type of business activity, location, and other factors such as compliance to financial reports and obligations, annual returns, etc..

Conclusion: Corporate tax in UAE 2023 in a nutshell!

The UAE government and Ministry of finance led by Maktoum bin Mohammed Al Maktoum is always updating tax laws of the country. To enhance the business environment and develop commerce activities of all emirates and entities. Recently, all concerned authorities responsible for coming up with critical decisions gathered to apply the updated corporate tax starting from 1st June 2023.

Although there are exemptions for this tax in some UAE corporations particularly, those in UAE free trade zones aren’t included in the new tax in UAE 2023, they are liable to other kinds of taxes. Conversely, companies in free zones benefit from a wide array of advantages aside from exemption from corporate and income taxes.

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FAQs:

What are Free Zones advantages?

According to the ministry of economy in the United Arab Emirates, free trading zones including main ones in Dubai, take a whole advantage of various benefits that include but not limited to:

  • 100% Foreign Ownership
  • 100% Repatriation of Capital and Profits 
  • Fast and Easy Business Set-up Procedures
  • Developed Business Communities
  • Numerous Options at Competitive Costs
  • 100% Exemption from Corporate and Income Taxes
  • 100% Exemption from Customs Duty
  • Independent Laws and Regulations
  • Easy Regional, Global Market Access
  • Modern and Sophisticated Infrastructure
Who is eligible for the corporate tax rate in UAE 2023?

The corporate tax rate in UAE for 2023 is applied for all businesses that operate commercial activities, with an exemption for some business model activities only such as businesses involved in the extraction of oil & foreign banks. 

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