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Corporate Tax for Small Business

CT Tax Rate for Small Businesses 

On the 1st of June 2023, the corporate tax rate will be 9% of the net profit made by businesses in the UAE. In order to support small businesses and start-ups, the corporate tax rate will be ‘0’ % if the net profit is up to AED 375,000. 

Impact on Small Business 

The new UAE Corporation Tax will require a change in mindset for the tax and finance department of any business. Moving forward, transactions and book entries will need to be undertaken with Corporation Tax in mind. 

It will be of utmost importance for small businesses in the UAE to follow tax technology best practices, followed stringently in other countries already. This includes e-audits, e-compliance, e-assessments, and e-invoicing.  Not only will these elements need implementation, but they also need to be robust enough to be changed as the Federal Tax Authority updates its requirements. 

Businesses Based in Free Zones

Free zone Businesses will be subject to UAE Corporation tax, however the Federal Tax Authority will continue to honour the tax incentives in place by the various Freezone authorities. This is because many have historically offered tax fee incentives for 20 years when forming a company there. This however is not applicable to those trading on the mainland and calculating the correct tax would need to be done accurately with the appropriate documentation. Businesses would still be required to file a Corporate tax return even if they are based in a freezone.

Small Business Relief

The UAE Ministry of Finance announced the introduction of the Small Business Relief for Corporation Tax Purposes and some of the key takeaways for entrepreneurs to be aware of is a follows:

1. This applies to Mainland businesses (qualified freezones are exempt)
2. Revenues should not exceed AED 3m for each tax period
3. The small business relief will only apply until December 2026
4. Businesses cannot be separated into different licences to artificially claim the Small business relief for each entity
5. Tax losses will not be carried forward for subsequent periods
6. Multinational companies will be exempt if the group revenues are more than AED 3.15bn

Corporate Tax Credit on Losses

Companies would be able to offset losses against profits thereby not being penalised for loss making periods and therefore supporting businesses in the UAE. This would be applicable subject to strict requirements of claiming back the loss which would require appropriate documentation.

Withholding Tax

Other tax regimes in the GCC have Withholding tax (WHT) rules on payments outside the country. It seems that there would not be any WHT due on dividends, interest, royalties and other similar payments in the UAE

WHT is the tax collected at source by the payer on behalf of the recipient of the income.

Accounting Adjustments

In some circumstances, accounting adjustments may affect the calculation of corporation tax. These may include:

1. Impairments of assets and liabilities.

2. Assets and Liabilities held on capital account whilst taking into consideration

3. any unrealised gains or losses.

Exempt Income

The Corporation tax law has made reference to Exempt income. Which is the income where no Corporation tax is due. This includes dividends and other profit distributions from foreign and UAE based companies subject to certain criteria.

Corporate Tax Registration

It is expected that all companies would need to register for Corporation Tax in the UAE.

Corporate Tax Submission

Corporate Tax filing is expected to be submission once a year and is based on the financial year of the business. It is also expected to be filed electronically.

Penalties and Fines

There is an expectation of late registration and late submission penalties levied on companies for non-compliance. Similar rules to the VAT law whereby late payment penalties is likely to be included also.

Key contact

Rayhan Aleem, Founder and Managing Partner, Alpha Pro Partners
Rayhan Aleem
Managing Partner of Alpha Pro Partners

What is Group Relief?

Group relief is a relief from Corporate Tax. Businesses are able to create tax groups under the UAE corporate tax framework, which will go into force in June 2023.

Small Business Compliance Checklist

The new UAE Corporate Tax regime will require businesses to have comprehensive accounting and bookkeeping in place.

Our consultants and partners will work with you to support your compliance requirements using our comprehensive checklist.

Corporation Tax Introduction

Corporate Tax (CT) is a direct tax levied on the net income or profit of corporations and other businesses.

Do I need to Comply with Transfer Pricing Rules?

Transfer pricing refers to the prices of goods and services that are exchanged between companies under common control.

Do I need to Pay Foreign Tax and Double Taxation?

Under the upcoming UAE Corporate Tax regime, foreign companies will be subject to the corporate tax rate of 9% on annual taxable income exceeding AED 375,000.

Corporate Tax application on Freezone companies

On 09 December 2022, the Ministry of Finance released Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. This law included the treatment of businesses on freezones as well as the mainland.

What’s a Rich Text element?

The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.

Static and dynamic content editing

A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!

How to customize formatting for each rich text

Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.

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Supporting Small Businesses in the UAE with Registration, Consultation and Corporate Tax Filing

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We care about your business

We Care

You have put your blood, sweat and tears into your business and you deserve a partner who understands. Our promise is that we will treat your business like our own.

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We are Xero Platinum Partners and are experts in using Xero. Xero is continuously making improvements and enhancements to its software and we believe it's the best accounting software available for your operational and accounting needs.

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Supporting your business with accounting, bookkeeping, and software implementation tasks

Supporting your Growth

In 2021, we supported our clients to grow their revenues by 98%. We work with 100’s of diversified clients and advise them on sustainable growth strategies.

UAE Corporation Tax Complian With Xero Experts

Key Highlights on UAE Corporation Tax 

  • UAE Corporation tax rate one of the lowest within the GCC region and along major economies
  • Tax applicable on profits above AED 375,000 and not below that
  • Standard Corporate Tax Rate is 9%
  • CT effective from 1 July 2023 from financial year 2023 ending on 30 June 2024
  • The financial year for businesses starting 1 January 2023 and ending 31 December 2023 will become subject to the tax beginning from 1 January 2024
  • Tax incentives offered to freezone businesses complying with all regulatory requirements will remain
  • Capital gains and dividends received by the companies in UAE from their qualifying shareholdings are also exempt from paying CT.
We care about your business

We Care

You have put your blood, sweat and tears into your business and you deserve a partner who understands. Our promise is that we will treat your business like our own.

Xero experts

We are Xero Platinum Partners and are experts in using Xero. Xero is continuously making improvements and enhancements to its software and we believe it's the best accounting software available for your operational and accounting needs.

Xero Accounting Software Experts
Supporting your business with accounting, bookkeeping, and software implementation tasks

Supporting your Growth

In 2021, we supported our clients to grow their revenues by 98%. We work with 100’s of diversified clients and advise them on sustainable growth strategies.

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