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Key Corporate Tax Considerations 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 AUE. 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 Freezones

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.

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.

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
Managing Partner of Alpha Pro Partners

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Corporation Tax Introduction

All businesses and individuals conducting business activities under a commercial license in the UAE will be subject to Corporation Tax.

Do I need to Comply with Transfer Pricing?

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

What is Group relief?

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

Do I need to Pay Foreign Tax and Double Taxation?

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

Small Business Compliance Checklist

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

Go back to Corporation Tax Home

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

What we offer

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.

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