Are you a business owner looking to establish your presence in the Middle East region? Your first point of entry should be the stable economy of the UAE. As the UAE continues to attract businesses worldwide, it is essential to have a solid understanding of the recently introduced, one of the lowest corporate tax regimes in the world. Also having strategies that can help you optimize your tax liabilities and ensure compliance with the UAE’s evolving tax regulations can make your business highly tax efficient. If you plan to Set up a Business in Dubai, Next Generation Corporate Services can assist you with the knowledge and insights to make informed decisions and optimize your tax position.
Personal Tax & Capital Gains
The UAE is still one of the only countries that has no personal income tax as well as no tax on capital gains. This unique proposition has attracted not just businesses and entrepreneurs but also highly talented individuals to be based in Dubai. As a business, this gives you an edge over your competition globally as having a high caliber team can drive success.
Evolution of Corporate Tax in the UAE
Recent Tax Reforms and Diversification Efforts
In recent years, the UAE has undergone tax reforms, such as the implementation of the Value Added Tax (VAT) in 2018, introducing economic substance rules (ESR) and Country-by-Country Reporting (CbCR) regulations in 2019. These steps align the UAE with international markets and enhance transparency and compliance.
The New Federal Corporate Tax System
Implementation Timeline and Key Dates
The new federal corporate tax system in the UAE is now applicable for companies with financial years starting on or after June 1, 2023. Companies adopting a fiscal year starting on June 1, 2023, and ending on May 31, 2024, will be subject to corporate tax starting on June 1, 2023. The first tax return filing is expected to be due towards the end of 2024.
For companies adopting a calendar year from January to December, corporate tax will be applicable starting on January 1, 2024. The filing deadline for these companies is likely around mid-2025.
Applicability and Exceptions
The new federal tax system will apply to all business and commercial activities functioning within the UAE. Nevertheless, there are a few exceptions to consider:
- Businesses operating in the extraction of natural resources will continue to be subject to tax decrees issued by the respective emirates.
- Individuals earning income in their personal capacity, such as salary or investment, will not be subject to corporate tax unless the income-generating activity requires a commercial license.
- Businesses registered in Freezones provided they comply with all regulatory requirements and do not conduct business with mainland UAE, may be exempt from corporate tax.
It is worth noting that the foreign banking sector, previously subject to emirate-level bank tax decrees, will now be subject to the UAE Federal Tax Law. The specific impact of corporate tax on the banking sector will be communicated in due course, marking a significant shift for both branches of foreign banks and local banks.
Understanding the Tier System
The new UAE corporate tax system includes three tax rates:
- Zero tax rate for annual profits up to AED 375,000, benefiting SMEs and startups.
- A standard 9% rate for annual profits over AED 375,000, the lowest in the GCC region.
- Different tax rates for MNEs under the BEPS 2.0 framework based on OECD rules addressing profit shifting.
To understand tax applicability in detail and for expert insights on UAE Corporate Tax Planning, don’t hesitate to contact Next Generation Corporate Services, a leading Professional Corporate Service provider in Dubai.
In conclusion, the UAE’s commitment to tax reforms and diversification efforts presents businesses with opportunities for growth and success. By leveraging the expertise of Professional Corporate Services, businesses can position themselves strategically, maximize tax benefits, and seamlessly integrate into the flourishing UAE market. Contact Next Generation Corporate Services to embark on your journey to success