The United Arab Emirates (UAE) has long been celebrated as a business-friendly jurisdiction, known for its attractive tax policies. One of the most sought-after advantages of operating in the UAE has been the absence of personal income tax, meaning individuals alike have typically enjoyed tax-free salaries, dividends, and interest on bank deposits. For many years, the country also maintained a zero corporate tax rate, allowing business owners to thrive without paying taxes on the company’s profits.

However, in recognition of the global push for increased tax transparency and adherence to international regulations, significant changes have been introduced to the tax landscape in the UAE. On December 9, 2022, the UAE Ministry of Finance released Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, commonly referred to as the "Corporate Tax Law." This legislation introduced a corporate tax with a headline rate of 9%, effective for financial years starting on or after June 1, 2023.

Understanding Corporate Tax

Under the newly established tax regime, businesses that generate taxable profits over AED 375,000 will be subject to a standard corporate tax rate of 9%. This threshold ensures that smaller businesses will not be immediately burdened by the new tax requirements. It’s important to note that individual income, including wage, personal investment income and real estate investment income, remains exempt from corporate tax.

Who is Required to Pay Corporate Tax?

Both residents and non-residents may be obligated to pay corporate tax in the UAE.

A Resident Person includes, without limitation:

• Juridical persons that are incorporated or otherwise established or recognised under the applicable UAE legislation, including free zone persons;
• Juridical persons that are incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction that are effectively managed and controlled in the UAE;
• Natural persons conducting business or business activities in the UAE.

A Non-Resident Person is defined as a natural or juridical person who is not considered a Resident Person and that either has a permanent establishment in the UAE, derives UAE-sourced income, or has a nexus in the UAE.

Free Zone Persons

Typically, free zone companies in the UAE are subject to the standard corporate tax rate of 9%. However, businesses recognized as "Qualifying Free Zone Persons" may continue benefiting from a 0% tax rate, provided they meet defined conditions.

Key Obligations of Taxable Persons

With the implementation of the Corporate Tax Law from June 1, 2023, a number of accounting and reporting obligations have emerged. Here are some critical updates:

Corporate Tax Registration:

All taxpayers must register for corporate tax based on the period their license was issued. For businesses already established, registration timelines will depend on the issuance month of their license, and they must ensure timely registration. If your business is newly registered (after March 1, 2024), you must apply to register for corporate tax within three months from the date of incorporation, establishment or recognition. Adhering to these timelines is crucial to avoid penalties: late registration now attracts a fine of AED 10,000, as outlined in FTA Decision No. 10.

Tax Return Preparation:

All taxpayers, including businesses in free zones and individuals conducting business activities, must prepare financial statements and file tax returns within nine months of the end of the tax period. For example, if the reporting tax period ends on December 31, 2024, the return should be submitted by September 30, 2025.

Audited Financial Statements:

Certain companies will be obligated to prepare and maintain audited financial statements.

Transfer Pricing Compliance:

Entities engaged in transactions with related parties must adhere to transfer pricing rules, ensuring that all transactions are conducted at arm's length. This entails maintaining documentation to support pricing strategies.
 
The transition to a corporate tax regime doesn't negate the UAE's attractiveness for entrepreneurs, but rather it places new obligations on companies to maintain compliance.

DiLex Group`s Comprehensive Services

To ensure adherence to these newly implemented regulations, consider enlisting professional guidance. DiLex Group is here to assist you with the company opening in the UAE, corporate tax registration, financial statements preparation and tax returns filings, providing tailored advice to meet your legal and accounting obligations.

 
For a smooth transition into this new tax landscape, reach out for comprehensive support.