Corporation Tax Introduction
All businesses and individuals conducting business activities under a commercial license in the UAE will be subject to Corporation Tax.
The UAE Corporation Tax also extends to businesses engaged in:
- Real Estate Management
- Consulting Services
- E-commerce and digital companies
- F&B businesses
Determining the amount of Corporation Tax is due on Profits
The taxable profit subject to corporation tax will be calculated from the accounting net profit of a business after making deduction for certain items as per Corporate Tax law.
The acceptable accounting net profit of a business is normally reported in the audited financial statements prepared according to IFRS (International Financial Reporting Standards).
Free Zones and Corporation Tax
Businesses operating in Free Zones will be subject to UAE Corporation Tax, but the UAE Corporation Tax regime will continue to apply incentives offered to free zone businesses (providing they comply with the regulatory requirements and do not conduct business with mainland UAE).
Entities operating in Free Zones will be subject to a 0% CT rate on their taxable income. If an entity located in a Free Zone derives non-passive income from mainland UAE all its income will be subject to the general CT regime.
Passive income can be loosely defined as income that continues to be earned after some initial work, and that requires little-to-no daily effort to maintain.
A Free Zone Person that meets all of the following conditions:
1. Maintains adequate substance in the State.
2. Derives Qualifying Income
3. Has not elected to be subject to Corporate Tax
4. Complies with Articles 34 (Arm’s Length Principle) and 55 (Transfer Pricing Documentation)
Businesses engaged in the extraction of natural resources are exempt from Corporation Tax as these businesses will remain subject to the current Emirate level of Corporate Taxation.
Dividends and Capital Gains earned by a UAE business from its qualifying shareholdings will be exempt from Corporation Tax.
A list of other exemptions
- Interest and other income earned by an individual from bank deposits or saving schemes.
- A foreign investor’s income earned from dividends, capital gains, interest, royalties and other investment returns.
- Investment in real estate by individuals in their personal capacity.
- Dividends, capital gains and other income earned by individuals from owning shares or other securities in their personal capacity.
An individual will be required to pay UAE Corporation Tax if they hold a business license or permit. Holding a license or permit for business operation purposes places the individual’s money-making activities on an equal level to licensed businesses. If the individual is not required to have a business license or permit, then the activity is not considered a business.
If an individual operates as a legal entity then the activities they are engaged in will be considered the operations of a business. Activity such as trading assets, real estate, stocks, and cryptocurrency - would be considered a business activity and thus subject to UAE Corporation Tax.
Tax Filing and Administration
All taxpayers will be required to register before filing the first Corporate Tax Return, and obtain a Corporate Tax Registration Number.
Taxpayers will be able to electronically register for UAE CT through the website of the Federal Tax Authority.
Only one UAE CT return will need to be filed per Tax Period. The CT return will generally be due within 9 months following the end of the Tax Period. No provisional or advance UAE CT filings will be required.