Corporate Tax in UAE
The United Arab Emirates is all set to introduce the first Direct Tax in its history, Corporate Income Tax, honoring International Taxation Practices and diversifying income sources. It is time for business entities to prepare themselves for the change.
Tax Rate & Calculation
The proposed CIT introduces a 3-tier system and the rates are as follows:
Annual taxable profits below or equal to AED 375,000 shall be subjected to a zero rate.
Annual taxable profit above AED 375,000 shall be subjected to a 9 per cent rate.
Multinational Entities within the scope of OECD Base Erosion and Profit Shifting rules will face a differential treatment which is yet to be announced.
Unlike VAT Law which is over turnover, the threshold of the CIT is determined over Business Profit.
Are freezone income exempt from corporate tax?
The following incomes are exempt from corporate tax
Manufacture or processing of goods
Holding of shares and other securities.
Ownership, management and operation of Ships.
Reinsurance services
Fund management services
Wealth and investment management services
Headquarters services to Related Parties.
Financing and leasing of Aircraft
Distribution of goods or materials in or from a Designated Zone to a customer that resells such goods (export of goods from UAE to a reseller)
Logistics services.
Any activities that are ancillary
If your activities fall in any of the above categories corporate tax is not applicable subject to the following condition
Accounts are maintained under IFRS
Accounts are audited
The income from other activities does not exceed lower of 5 million or 5% of total income
We get service income from consultancy activities rendered outside UAE, do we have to pay tax?
Yes , since it does not fall within the activities listed above
We get income from the export of goods from UAE, do we have to pay tax?
Tax is not required to be paid subject to meeting following condition
Export is from a designated free zone
A declaration that the exported goods are for reselling is obtained from the importer
Other income (non-qualifying income) does not exceed more than 5 million or
5% of total turnover during the year
Books of accounts are maintained
Accounts are audited
Adequate assets/employees are maintained in UAE
We get income from export of goods from a place other than UAE(High sea sales), do we have to pay tax?
Yes , since it does not fall within the activities listed above (Qualifying income)
We get income from manufacturing or processing goods in freezone, do we have to pay tax?
Tax is not required to be paid subject to meeting following condition
Export is from a designated freezone
A declaration that the exported goods are for reselling is obtained from the importer
Other income (non-qualifying income) does not exceed more than 5 million or 5% of total turnover during the year
Books of accounts are maintained
Accounts are audited
Adequate assets/employees are maintained in UAE
We get income from immovable property (Gain or rental); do we have to pay corporate tax?
If immovable property is located in Freezone
The transaction with entities in freezone in respect of commercial properties is not taxable
*Hotels ae not commercial properties
All other types are taxable
If immovable property is located outside freezone ?
Yes Taxable
Our turnover is less than 3 million , do we have to pay corporate tax?
If your turnover is less than 3 million then entity can claim small business relief exemption , subject to following condition
Turnover is less than 3 million in the current and previous tax period
Exemption valid only till 31 December 2026
Accounts are maintained under IFRS
Should not have applied for qualified freezone status
Not eligible for carryforward of losses
Should not be a case of artificial separation of business- where entity uses unfair
practises to claim small business relief
Our profit is less than AED 375,000, do we have to pay corporate tax?
Corporate tax is applicable only if the profit exceeds AED 375,000, subject to maintenance of accounts