Corporate Tax Consultants in Dubai

Corporate Tax, extracted from a business’s net income, is a form of direct tax.

Elsewhere, people sometimes refer to Corporate Tax as “Corporate Income Tax” or “Business Profits Tax.

UAE Corporate Tax applies to legal entities incorporated in the UAE that effectively manage and control their operations within the country. It also extends to foreign legal entities that have a permanent establishment in the UAE, as outlined in question 20, ‘Who is considered a resident for UAE CT purposes?’

Individuals will incur Corporate Tax obligations only if they engage in business or business activities in the UAE, whether directly or through an unincorporated partnership or single proprietorship. In time, a Cabinet Decision will come out with more details.This decision will outline what a natural person would have to do to fall under UAE Corporate Tax.

• The UAE CT doesn’t apply to the following people, either immediately or if they apply:
• The UAE Federal and Emirate Governments, as well as their departments, organizations, and other public institutions;
• Government-owned companies that must undertake specific actions and are explicitly stated in a Cabinet Decision;
• Upon meeting specific requirements, businesses engaged in the extraction of natural resources from the UAE and conducting other associated non-extraction activities incur taxation at the Emirate level;
• Entities mentioned in a Cabinet Decision help the public;
• Funds for investments that meet the requirements;
• Pension or social security funds that are either public or private and meet certain requirements; and
• Certain exempted companies own and run UAE legal entities that meet specific conditions.

In line with how most countries handle taxes, the Corporate Tax Law taxes money based on both its source and its expenditure. Depending on how the Taxable Person is classified, there are different ways to figure out taxes.

• A “Resident Person” has to pay taxes on money from both inside and outside the country. (i.e. a residence basis).
• The Corporate Tax Law will only tax money for a ‘Non-Resident Person’ that comes from sources inside the UAE. (i.e. a source basis).

For Corporate Tax reasons, a person’s residence isn’t based on where they live or where they have their permanent home. Instead, the Corporate Tax Law sets out certain factors on which it is based. If a person doesn’t meet the requirements to be either a resident or a non-resident, they won’t be a “Taxable Person” and won’t have to pay Corporate Tax.

For the purposes of Corporate Tax, the laws of the UAE immediately consider companies and other legal entities formed or recognized under them as Resident Persons. This encompasses legal entities made in the UAE under either mainland law or Free Zone rules, as well as those established by a special statute. (e.g. by a special decree).

For Corporate Tax, foreign entities can be Resident Persons if effectively managed in the UAE. The decision depends on entity specifics, including the location of important decisions.

As a “Resident Person,” a natural person will have to pay Corporate Tax on income from both inside and outside the UAE, but only if that income comes from a business or business activity that person runs in the UAE. Corporate Tax would not apply to any other money a natural person earns.

Non-Resident Persons are legal people who are not Resident Persons and who do the following:

• have a permanent place of business in the UAE;
• get money from the state.

Non-Resident Persons’ Taxable Income due to their Permanent Establishment will be subject to Corporate Tax. (which is explain at under Section 8).

Certain UAE-based income of a non-resident person that isn’t tied to a permanent establishment in the UAE will be subject to 0% Withholding Tax.

Permanent Establishment is an important part of international tax law. Tax systems for corporations all over the world use this idea. The main goal of the UAE Corporate Tax Law’s “Permanent Establishment” idea is to figure out if and when a foreign person has set up enough of a presence in the UAE for their business profits to be subject to Corporate Tax.

The definition of “permanent establishment” in the Corporate Tax Law is based on the definition in Article 5 of the OECD Model Tax Convention on Income and Capital and the position taken by the UAE under the Multilateral Instrument to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.

This lets people from other countries use the appropriate Commentary of Article 5 of the OECD Model Tax Convention to figure out if they have a permanent establishment in the UAE or not. This evaluation should take into account any tax agreements between the country where the Non-Resident Person lives and the UAE.

Taxable Income made by a Taxable Person in a Tax Period is subject to Corporate Tax.

Corporate Tax would usually be charged once a year.The Taxable Person would be responsible for figuring out how much Corporate Tax they owed.This means that the Taxable Person must file a Corporate Tax Return.The return is filed with the Federal Tax Authority.The purpose is to figure out and pay the Corporate Tax.

The Taxable Person starts with accounting income to determine Taxable Income. Adjustments are made for tax-free income and partially deductible expenses for the relevant Tax Period.

The Corporate Tax Law does not impose any Corporate Tax on certain types of money. Additionally, no tax breaks are available for associated costs related to this income type. Taxable Persons whose income is free will still have to pay Corporate Tax on their Taxable Income.

The main reason some money is not taxed by the Corporation Tax is to keep some income from being taxed twice. In particular, dividends and capital gains from local and foreign stock holdings will usually not be subject to Corporate Tax. Also, a Resident Person can choose, under certain conditions, for UAE Corporate Tax reasons not to count income from a foreign Permanent Establishment.

In theory, all legal business costs that are incurred solely and only for the purpose of earning Taxable Income are deductible. However, the timing of the deduction may differ depending on the type of expense and the accounting method used. For capital assets, one typically counts spending as depreciation or amortization payments over the useful life of the asset or benefit.

Expenses with more than one purpose, such as those spent for both personal and business reasons, require splitting up. Only the portion of the expense incurred for the taxable person’s business is deductible.

Some generally deductible costs may not be fully deductible under Corporate Tax.

When Taxable Income is more than AED 375,000, the top rate of Corporate Tax will be 9%. If your taxable income is less than this amount, you won’t have to pay any Corporate Tax on it.

Some payments from the UAE to non-residents may have a 0% withholding tax rate, exempting them from tax deductions. There is no requirement for businesses and individuals receiving such payments outside the UAE to register. Similarly, there is no obligation to file withholding tax-related documents.

A “Qualifying Free Zone Person” can get a special Corporate Tax rate of 0% on their “Qualifying Income,” but not on other income.

To be a Qualifying Free Zone Person, a Free Zone Person must do the following:

• keep enough weight in the UAE;
• figure out the “Qualifying Income”;
• not have chosen to be exposed to the standard rates of Corporate Tax; and
• meet the standards of the Corporate Tax Law for transfer prices.

A Qualifying Free Zone Person may have to meet other requirements set by the Minister.

If a Qualifying Free Zone Person fails conditions or opts for regular Corporate Tax. They pay standard rates from the period they fail to meet the conditions.

In Corporate Tax, two or more qualifying Taxable Persons can form a ‘Tax Group’. Tax authorities will treat them as a single entity.

For a Tax Group to exist, the main company and its subsidiaries must be resident legal persons with the same Financial Year. They should also use the same accounting standards for their financial records.

To calculate Taxable Income for a Tax Group, the parent business consolidates subsidiary financial accounts in the relevant Tax Period. In calculating Taxable Income for the Tax Group, exclude transactions between the parent company and group members.

Read the Corporate Tax Law & the related information on the websites of the Ministry of Finance & the Federal Tax Authority.

Use the details you have to figure out if your business will have to pay Corporate Tax and, if so, when.

Learn what your business needs to do to meet the standards of the Corporate Tax Law, such as:

• Whether or not your business needs to sign up for Corporate Tax and by when;
• What is your business’s accounting/tax period;
• When your company has to file a Corporate Tax return;
• What choices or applications your business can or should make for the goals of Corporate Tax;
• What financial records and information your business needs to keep for the Corporate Tax;

Frequently check the Ministry of Finance and Federal Tax Authority websites for updates on the Corporate Tax system.