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What is the Corporate Tax Meaning?

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corporate tax meaning

Introduction:

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 corporate tax meaning, highlighting its benefits and impacts on the United Arab Emirates economy.

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Corporate Tax Meaning:

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. In addition, Cambridge Dictionary explains company tax definition as “tax that a company has to pay on its profits.”

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:

corporate tax meaning

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 maintains sustainable economic growth and prevents financial obstacles and problems in the future. 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.

How to Define Company Tax:

  1. Calculating the taxable income:

Corporate tax meaning is the taxes that are paid on the net profit of a company. So, the first step in corporate tax payment is  calculating the taxable income, excluding the expenses. According to Investopedia, taxable income is “any gross income earned that is used to calculate the amount of tax you owe.”

  1. Deductions from Corporate Tax:

Companies are allowed to reduce their taxable income by necessary and certain business expenses. They can deduct employee salaries, health benefits and bonuses, insurance premiums, travel expenses, bad debts, interest payments, sales taxes, fuel taxes, and excise taxes.

The Impact of Corporate Tax on the UAE Economy:

corporate tax meaning

The announcement of the corporate tax rate of 9% in the UAE resulted in several positive impacts on the UAE economy:

  1. 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.

  1. 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 for TaxationBookkeeping and Bookkeeping Agency is a leading accounting firm in Dubai that is certified by the Federal Tax Authority in UAE. Alsun for Bookkeeping and Taxation provides many services, as the following:

●      Financial Statement Preparation

●      Bookkeeping

●      Tax payment planning

●      Corporate Tax Services

●      VAT Services

●      Financial Consulting

Alsun for Bookkeeping and Taxation has a team of professional tax agents and accountants that provide professional and 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

Corporate Tax meaning is the tax paid on the net profit of a company. The United Arab Emirates declared that the corporate tax rate of 9% will be applicable to profits more than AED 375,000 on June 1, 2023. Corporate income tax definition plays a crucial role in economic growth. Thus, this announcement has many impacts on the UAE economy. UAE corporate income tax rate is the lowest, unlike many countries, and this encourages foreign investors to make many projects in different fields. The UAE government uses the corporate income tax to fund public services and national projects, which flourish the UAE economy.

Accordingly, Alsun for Bookkeeping and Taxation helps businesses in the UAE define company tax. Our team of professional tax agents in Dubai provides accurate corporate tax payment planning alongside financial consulting to minimise the burden of taxes. For further information about corporate tax meaning, don’t hesitate to contact us:

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FAQs

What is the meaning of corporate tax in UAE?

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%.

What services does Alsun for Bookkeeping and Taxation provide?

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.

What companies are subject to corporate income tax in UAE?

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%.

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