The United Arab Emirates (UAE) has always been known for its business-friendly policies, including a favorable tax system. However, starting from June 1st, 2023, the country will introduce significant changes in its corporate tax regime, aimed at enhancing its competitiveness and ensuring sustainable economic growth. Register a company in Dubai will be significantly impacted by these developments, both locally and abroad. In this brief overview, we will examine the key changes in new the corporate tax UAE 2023 and their implications for businesses.
The current corporate tax system in the UAE
The United Arab Emirates (UAE) has a unique tax system that is quite different from the tax systems of other countries. The UAE is a federal country, which means that each Emirate has the authority to determine its own tax laws. However, in practice, the federal government has taken the lead in setting up the corporate tax system.
The UAE currently has no federal business UAE corporate income tax law. However, there are some other taxes that companies may be required to pay. For example, there is a value-added tax (VAT in UAE) of 5%, which was introduced in 2018. The majority of products and services, including imports, are subject to this tax. The UAE federal corporate tax authority(FTA) oversees the VAT system.
In addition to VAT, there are some other fees and taxes that companies may need to pay. For example, there are customs duties on imported goods, which can range from 0% to 5% of the value of the goods. There are also some fees associated with company registration, licensing, and other administrative requirements.
It is worth noting that there are some exceptions to the UAE corporate taxes system in the UAE. Certain industries, such as healthcare, education, and real estate, are exempt from VAT. There are also some corporate tax UAE free zone where companies are exempt from most taxes and customs duties.
The UAE Corporate Tax 2023– What Is It?
The UAE corporate tax rate will increase to 9% in 2023 for any company that makes more than 375,000 AED (about $100,000 USD) in profits (sales fewer costs). Businesses with annual income below this limit are still excluded from paying any taxes.
The UAE has also stated that significant multinational firms with income of more than EUR 750 million will be subject to a 15% tax in addition to the corporate tax, in compliance with the Global Minimum Corporate UAE tax rate agreement.
The majority of businesses will need to start saving money aside to pay their taxes as of the start of the UAE new tax year commencing June 1st, 2023 due to the new UAE corporation tax. Businesses having tax years beginning in January will not be obliged to begin paying taxes on revenue received prior to January 1, 2024.
Key Features of the New UAE Tax Regime of 2023
1. Who Can Be Taxed
Certain industries and entities may still be subject to taxes or fees. Here is a breakdown of who may be taxed according to the corporate tax law UAE in 2023:
Oil and Gas Companies
Companies operating in the oil and gas industry are subject to a 55% tax on their income in the UAE. This tax applies to both foreign and domestic companies.
Branches of Foreign Banks
Foreign banks operating in the UAE are subject to a 20% tax on their taxable income.
Foreign Companies with a Permanent Establishment
If a foreign company has a permanent establishment in the UAE, it may be subject to tax on the income attributable to that establishment.
Free Zone Companies
Companies operating in certain free zones may be subject to paying a 5% tax on their profits. However, many UAE corporate tax for free zone offer exemptions from taxes and customs duties to encourage investment according to UAE new tax 2023.
Certain goods such as tobacco products, energy drinks, and soft drinks are subject to excise tax in the UAE. The tax is set at 100% for tobacco products and 50% for energy drinks.
2. Rates Of Taxation
If a business makes income that does not exceed AED 375,000, no tax is levied; if the income exceeds AED 375,000, tax is levied at 9%. For bigger international corporations with varied business circumstances, a separate tax rate will also be applied.
3.Calculating Taxable Income
The tax rate and income are typically calculated using the account net profit or loss presented in the company’s financial statements. In the event of a business loss, the corporation may deduct up to 75% of the amount from its taxable income in subsequent fiscal years.
It may be possible for a collection of businesses to get together to create a tax group that would allow them to be recognized as a single taxable entity. A corporation or subsidiary must not be an exempted party or have a free zone registration in order to do this.
5. Tax deductions
The system will permit a credit in tandem with foreign tax paid in a foreign jurisdiction against foreign tax revenue that has not been exempted in an effort to prevent double taxation.
Will there be taxes on individuals’ income in Dubai?
No, neither Dubai nor the rest of the UAE has any current plans to tax individuals’ personal income. The 5% VAT tax that everyone in Dubai must pay on goods and services for consumption serves as the only type of personal income tax.
The introduction of the new corporate tax in the UAE marks a significant shift in the country’s economic policy. While the tax is set at a low rate of 5%, it is expected to generate significant revenue for the government, which can be used to fund social and economic development initiatives. It is also a sign of the UAE’s continued efforts to diversify its economy and reduce its reliance on oil revenues.
Businesses operating in the UAE will need to carefully review their tax obligations and ensure compliance with the new regulations. However, the UAE’s tax system is designed to be business-friendly, with a range of exemptions and incentives available to encourage investment and growth.
Frequently Asked Questions
1. When corporate tax will start in UAE 2023?
The United Arab Emirates (UAE) recently incorporated the UAE Corporate Tax regime which shall come into effect from 1st June 2023.
2. What is the new tax on companies in UAE?
UAE corporation Tax (CT) regime stipulates that beginning with the fiscal year beginning on or after June 1, 2023, taxable income above AED 375,000 would be subject to 9% corporation tax.
3. What is the meaning of corporate tax in UAE 2023?
For a covered person, the UAE Corporate Tax is applicable to income from the sale of goods and services beginning with the tax period beginning on or after June 1, 2023.
4. What is the new UAE corporate tax and when does it go into effect?
The new UAE corporate tax is a federal tax on corporate profits that will go into effect on June 1, 2023.
5. Which companies are subject to the new corporate tax in the UAE?
All companies operating in the UAE, including onshore and free zone companies, will be subject to the new corporate tax.
6. What is the rate of the new corporate tax in the UAE?
The standard rate of the new corporate tax in the UAE is 15% of taxable income, although there are some exceptions and deductions available.
7. How will the new UAE corporate tax impact businesses operating in the country?
The new corporate tax will increase the tax burden on businesses operating in the UAE, but it will also provide a stable source of revenue for the government and help to diversify the country’s economy. Companies will need to plan and prepare for the new tax, including evaluating their tax liability and ensuring compliance with new reporting requirements.
8. What is the corporate tax from June 2023 in UAE?
Corporate Tax will be 0% if the business’s Taxable Income is less than AED 375,000.