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Who needs to pay Corporation Tax in the United Arab Emirates & who is exempt?
April 24, 2023

Who needs to pay Corporation Tax in the United Arab Emirates & who is exempt? 

With the introduction of the Corporate Tax in the United Arab Emirates, you will need to understand if and how this will apply to you and/or your business.

Who pays corporation tax?

Most businesses that operate in the UAE are required to pay corporate tax on their profits.

The following businesses are required to register and pay corporate tax:

  • Companies registered in the UAE mainland:

This applies to all companies registered and operating in the UAE mainland and earn a profit. This includes both foreign and local companies that have established a presence in the UAE.

  • Unincorporated businesses (i.e. Sole Traders, Self Employed, Non-Company Partnerships):

Not all businesses conducting a trade in the mainland UAE need to be incorporated.

  • Free zone companies:

Free zone companies are also required to pay corporate tax on their profits. However, they may be eligible for a 0% tax rate subject to certain conditions and restriction from selling in the UAE mainland. The main Free Zones are Ras Al Khaimah Free Trade Zone, Dubai International Financial Centre (DIFC), Dubai Airport Free Zone, Jebel Ali Free Zone, Dubai Silicon Oasis, Dubai World Central and Abu Dhabi Global Market

  • Overseas/Non-UAE Companies with a permanent establishment in the UAE that generate taxable income from the sale of goods or services in the UAE.
  • Companies with a branch or office in the UAE that generates taxable income.
  • Companies that are registered in the UAE, regardless of whether they are based in the country or not.

Who is exempt from Corporation Tax?

  • Government Entities:

Companies wholly owned by the federal or local government or government-controlled entities are exempt from Corporation Tax.

  • Companies engaged in certain activities:

Certain types of companies are exempt from paying corporate tax in the UAE. These include companies that are engaged in the following activities: Oil and gas exploration, Healthcare services, education services, and social services.

  • Companies engaged in production and refining:

the production and distribution of electricity and water, oil and gas exploration and production activities, transportation of crude oil and natural gas.

  • Charitable organisations:

Charitable organisations that are registered with the relevant authorities in the UAE are exempt from paying corporate tax.

  • Foreign companies with no permanent establishment in the UAE/non-resident companies:

Foreign companies that do not have a permanent establishment in the UAE are not subject to corporate tax.

  • Non-profit organizations:

Non-profit organizations that are registered with the relevant authorities in the UAE are exempt from corporation tax.

It is important to note that Free Zone companies are not exempt, instead they may benefit from a 0% tax rate.

To be exempt from the Corporate Tax, the company must meet certain requirements:

It must have an official license and be registered with the relevant authorities. The organization must provide financial statements that are compliant with the regulations set by the UAE Ministry of Finance.

If you need help complying with Corporation Tax in the UAE, please get in contact with us today

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Most jurisdictions now restrict or disallow client entertainment expenses, and the UAE is no exception to this. When you take a client out for dinner or drinks, or even paying for a joint golfing trip, this is client entertainment. You can indeed pay for this type of expense via the business, and it is still legitimate to do so.

When considering tax rate thresholds, how is UAE corporate tax calculated?

If a company has a taxable profit of 400,000 AED, the calculation will be (375,000 AED x 0%) + (25,000 AED x 9%) giving a tax bill for the period of 2,250 AED.

Is Dubai Truly Tax-Free? 

Simply put - Yes and no: There is no income tax on a person’s salary, wages, bank interest, dividends, or capital gains in Dubai, however, from June 2023 corporation tax was introduced

Can I Avoid Corporation tax by paying all my profits as a salary in the UAE?

Our answer is – it is not that simple, and the FTA (Federal Tax Authority) are too smart for that one.

Are Free Zone companies subject to tax in the United Arab Emirates (UAE)?

It is important to note that Free Zone companies are not exempt from corporation tax in the UAE, but they may qualify for a 0% tax rate. This is an important distinction as all Free Zone companies be required to register for corporation tax with the Federal Tax Authority (FTA) and file returns at least annually.
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Information provided on the site is merely guidance that may change in line with UAE law and regulations. Users must not consider this to be financial advice or their sole resource when making any financial decision. Theta7 is a trading name for THETA 7 Accounting & Bookkeeping L.L.C, an authorised & licensed accounting firm under the Ministry of Economy and the Federal Tax Authority of the United Arab Emirates.
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