What is the Corporate Tax in UAE:

The United Arab Emirates (UAE) has established itself as a major worldwide business hub. Because of its favorable business environment, it attracts a large number of enterprises and investors. In addition to the strategic location and tax policy. One of the primary factors that make the UAE an appealing business destination is its corporate tax system.

The UAE does not levy a federal corporate income tax on the majority of businesses. Instead, each emirate has its own company taxes legislation. Currently, the two most important emirates with business tax systems are Dubai and Abu Dhabi.

Profits from businesses are not subject to corporate tax in Dubai. Except for certain types of oil and gas firms and overseas bank branches. This favorable tax environment has aided in luring an abundance of corporations to establish regional headquarters or operations in Dubai. Because there is no corporate tax, businesses can keep a larger share of their profits. Which can be re-invested in their operations, expansion, or research and development. Oil and gas firms and their subsidiaries are subject to a corporate income tax in Abu Dhabi.

This rate is set at 55% for these businesses. Companies in critical industries such as manufacturing, tourism, and healthcare, on the other hand. Tax exemptions or reduced tax rates may be available if specific requirements are met, and the relevant permits are obtained. It’s worth noting that the UAE does not have a federal business income tax. There may be additional fees and taxes that firms must pay. These include VAT, which was implemented in the UAE in 2018 at a standard rate of 5%. Local taxes and contributions may also be levied by the different emirates or regulatory authorities.

New Rules related to corporate tax.

The new rules aim to improve the flexibility of our corporate tax system. And to provide an ideal business environment for every sector.

The United Arab Emirates’ Ministry of Finance has announced three new rulings on corporate tax. These ministerial announcements define the requirements for exemption of pensions. That are private and regulated as well as social security funds. The foundation for making financial statements, and the methods to consolidate them into the tax group. And define the requirements for the claim of participation exemption.

Younis Haji Al Khouri minister’s undersecretary stated that the decision is to improve the flexibility of UAE’s tax system. And create a favorable corporate environment that is favorable to businesses of all businesses.

“The decision covers a variety of important issues relating to privately regulated pensions as well as social security trusts that generally are exempt from corporate taxation in different countries. Establishing IFRS as the accounting standard and further easing accounting procedures for SMEs is a sign of the commitment of the Ministry of Finance to place a low tax burden on businesses that are in compliance.
Additionally, the exemption for participation will stop the double corporate tax on earnings of a single entity and will eliminate double taxation in international jurisdictions.”

1. Social Security and Pension Funds

The decision also outlines additional conditions for private pensions that are regulated by the government and social security fund in the UAE to be exempt from corporate tax. This will allow for a better alignment with international tax laws in order that UAE private pensions or social security fund exempt status is also recognized when investing internationally in addition, double tax treaty advantages may be availed.

Furthermore, the ruling provides details on the contribution limits per beneficiary and the annual verification of compliance by a lawful auditor.

2. Methods and Standards for Accounting

This sets out clear guidelines for companies who prepare their financial statements, which can be used as a starting point to calculate the taxable income that is deductible for corporate tax. This decision affirms International Financial Reporting Standards (IFRS) are the accounting standard in the UAE and are required to be followed by companies with more than Dh50 million.

Small and medium-sized businesses with revenues that are not more than Dh50 million are able to choose the option of using IFRS. To lessen the burden of compliance even more, the decision confirms that cash basis accounting can be utilized by businesses with smaller than Dh3 million in revenue.

3. Participation exemption

It allows corporate tax exemptions on dividends, distributions of profits, and capital gains that result from a participation interest that is defined as having a five percent or more ownership stake in the shares of another entity, as well as capital held over a minimum of 12 months.
The exemption is applicable to subsidiaries that are located in a state that has an effective corporation tax rate that is less than 9 percent or is able to show that it has an effective tax rate minimum of 9 percent on income, profits, or equity.

The decision clarifies that relief is applicable to a variety of ownership interests which include preferred, ordinary, and redeemable shares, and partnership interest when the total cost for acquisition of the ownership interest is more than or equal to Dh4 million. The relief will ensure that UAE-based businesses with specific investments in foreign entities which comply with the necessary conditions will not have to pay UAE corporate tax for these investments.

How MASAR Can Help You:

MASAR is one of the top-ranked and fast-growing networks of professional auditing and accounting firm in UAE. MASAR provides invaluable assistance to corporations for corporate tax matters. They ensure tax compliance, helping companies adhere to tax laws and regulations to avoid penalties. They offer tax planning services, identifying opportunities for tax optimization, and minimizing corporate tax liability. MASAR aids in tax return preparation, ensuring accuracy and timely filing. They provide support during tax audits, acting as representatives and facilitating smooth communication with tax authorities. Additionally, they offer tax advisory services, guiding corporations on complex tax issues and interpreting new tax legislation. Their expertise helps corporations make informed decisions and achieve optimal tax outcomes.

Conclusion:

The UAE’s lack of or low corporation taxation has been a prominent driver of foreign direct investment (FDI). And has contributed to the country’s reputation as a business-friendly destination. It has promoted economic growth and entrepreneurship. And it has attracted foreign corporations looking for a tax-free environment.

Businesses and investors should, however, obtain professional guidance and understand the unique tax legislation and requirements applicable to their industry and operations in the UAE. The tax landscape can change over time, and remaining knowledgeable and complying with the current legislation is critical for the country’s effective corporate operations.