No. 1 Best Corporate Tax Consultant in Abu Dhabi, Sharjah, Ras Al Khaimah, Ajman, Fujairah
UAE, a country that has always been termed as a tax haven for having zero taxes on businesses operating there, has announced the implementation of corporate income tax. This tax will be levied on all the businesses operating in the region and they will be required to pay a certain amount from their profit as tax to the UAE government. Along with this transformation comes a lot of legal compliances. Also, all businesses will be required to file their income tax returns every year. The best way to handle the regular compliances is to hire a corporate tax consultant in Abu Dhabi, Sharjah, Ras al Khaimah, Ajman, and Fujairah. Having said that, it is important to understand more about this new taxation system. Let’s dive deeper.
What is Corporate Tax, UAE?
Corporate tax is a type of tax levied on business entities and corporations. It is a form of direct tax that has to be paid by corporations on their income. In other words, it is a certain percentage of profit that the businesses have to pay to the government. Before the year 2022, UAE was the only country that did not impose any taxes on the businesses registered on its land. This attracted a lot of foreign investments in the region. On 1st January 2022, the Ministry of Finance introduced the corporate tax in UAE. This move comes as a step toward shifting UAE from an oil-based economy and making it a technology hub. The newest corporate tax regime is expected to be effective from July 2023.
The implementation of corporate tax is aimed at reinforcing the UAEs status as the most promising and attractive destination for businesses. The past popularity of the UAE as a business hub was supported by its tax-free status. To keep that going, the UAE government has proposed to keep the corporate tax rates well below the global average of 23.5%. It will also help the region to power its development and transform it into a technology hub.
Need for Corporate Tax in Abu Dhabi, UAE?
The introduction of corporate tax in the UAE is a well-thought-after move of the UAE government to promote its development policy. It comes as the country’s aspiration to reduce its dependency on oil and build a taxation system that aligns with international best practices. Here are a few reasons why there is a need for Corporate Tax in TAE –
- To decrease the region’s dependency on oil and make a shift toward a technology-based economy. For years, UAE has been depending on its oil reserves for its economic development. But the rapid depletion of the oil reserves and the global inclination towards cleaner sources of energy have made it important for UAE to focus more on technology-based development.
- Another reason for this change is to align the taxation system of UAE with the major world economies and make the country an attractive destination for investment purposes. It is also aimed at speeding up the process of development to ensure that the strategic goals are met within time.
- The introduction of a systematic corporate tax system is also aimed at minimizing harmful tax practices, making it safer for foreign investors, and making UAE an attractive investment and business destination.
Scope of Corporate Tax in Abu Dhabi, UAE
The scope of the Federal Corporate Tax is very widespread and is applicable to all the business and commercial activities taking place within the 7 emirates of UAE. The scope of corporate tax in the UAE includes –
- All the businesses operating in UAE, except the ones registered in the Free Trade Zones (FTZ) and not operating anywhere else on the mainland of UAE.
- It includes all the businesses registered in UAE except the ones engaged in the production of natural resources. These will be charged tax as per the policies of the emirate.
- Individuals who earn any income in their personal capacity, if the business requires a commercial license.
- It will be applicable to the banking sector except for the branches of foreign banks operating in the region.
How and When will Corporate Tax be Implemented in Abu Dhabi, UAE?
Corporate tax will be applied to the profit or the income of the business entities and corporations. The new federal corporate tax system will be effective from the financial year starting June 1, 2023.
- Many businesses in UAE follow the fiscal year starting 1st June 2023 and ending on May 31, 2024. For such businesses, the corporate tax will be applicable from 1 June 2023.
- Some businesses also follow the calendar year as their fiscal year i.e. January 1, 2023, to December 31, 2023. For such businesses that follow this pattern, the new corporate tax system will be effective from Jan 1, 2024.
The tax has to be paid by the UAE businesses on the profits reported by them in their financial statements. The financial statements are required to comply with international accounting standards and have minimal adjustments and exceptions.
What Income is Exempt from Corporate Tax in Abu Dhabi, UAE?
While corporate tax is applicable to all businesses and corporations operating in the UAE, there are some exceptions. Here are the cases in which the corporate tax will not be applicable –
- The income from dividends made by foreign investors and qualified investments of a firm based in the UAE are exempted from corporate tax.
- Income earned from interest, capital gains, royalties, and other investments by overseas investors is exempt from corporate tax.
- Any income earned from the exploration and production of natural resources will not be subject to the corporate income tax.
- The profits earned by the branches of foreign banks will also be exempt from the corporate income tax.
- Foreign businesses and individuals who do not have frequent business activities in UAE are also exempt from corporate tax.
- Any Abu Dhabi Global Market (ADGM) and A Dubai International Financial Centre (DIFC) incorporated firm is also exempt from the tax.
- Any income earned by individuals from employment, share market investment, real estate, and other personal income that is unrelated to UAE is exempt frm corporate tax. On the other hand, the income earned by any individual who has a commercial license and freelancing income earned will be subject to Corporate tax in UAE.
Corporate Tax Rates in Abu Dhabi, UAE
The corporate tax rates in UAE have been divided into various slabs depending on the income level of individuals to maintain fairness. The entire corporate tax system of the UAE has been built in line with international best practices. As per the tax slab, for an annual income of upto AED 375,000, the tax rate is nil. For an annual income above AED 375,000, the tax rate is 9%. All multinational corporations having a consolidated global revenue higher than AED 3.15 billion will be subject to different rates based on the profit-sharing laws of the BEPS 2.0 framework and OECD-based erosion.
Here’s an example to understand the tax calculation –
If company A has a taxable income of AED 1000000 in a financial year then its tax liability will be calculated as follows –
Taxable income upto AED 375000 = 0
Taxable income above AED 375000 = 1000000 – 375000 = 625000
Tax = 625000 x 9% = AED 56250
Corporate Tax Return Filing in Abu Dhabi, UAE
In order to digitize government services, an e-return filing facility has been provided to businesses. All the businesses registered in the UAE, that come under the scope of corporate income tax are required to file a corporate tax return every year, electronically. Any failure to file the income tax return will result in a severe penalty.
- For entities following a fiscal year ending 30 June, the first corporate tax period will be from 1 July 2023 – 30 June 2024. The due date for filing the return and paying the tax will be 31 March 2025.
- For entities following the fiscal year ending 31 December, the first corporate tax period will be from 1 January 2024 – 31 December 2024. The due date for filing the return and paying the tax will be 30 September 2025.
- For corporations following the fiscal year ending 31 March, the first corporate tax period will be from 1 April 2024 – 31 March 2025. The due date for filing the return and paying the tax will be 31 December 2025.
The companies are required to file the returns and make the payment within 9 months of the tax period in UAE.
How Will Implementation of Corporate Tax Affect Abu Dhabi, UAE?
UAE, which has enjoyed the status of a tax haven for many years is now going to change its taxation system by introducing a Corporate tax that will be levied on business entities. The tax-haven status of the region attracted a lot of foreign investments. Prima facie it might look like the introduction of corporate tax will affect foreign investments, but it is not entirely true. UAE may still be a desirable and attractive destination for businesses and attract a lot of investment due to its very low corporate tax rates. UAE has proposed a corporate tax rate of 9% as against more than 30% in other countries which is the world’s lowest corporate tax rate.
Nonetheless, the introduction of this new tax regime is bound to bring about a lot of change in the way the taxation system works. The new regime will come with a lot of tax compliances for the business entities. You might consider hiring a corporate tax consultant in Abu Dhabi, Sharjah, Ras Al Khaimah, Ajman, and Fujairah to take care of your tax compliance needs. The purpose of the restructuring of the tax regime is to reduce the dependency of the UAE economy on oil and bring about a shift from an oil-based economy to a technology-based economy.
Services of Corporate Tax Consultants in Abu Dhabi, Sharjah, Ras Al Khaimah, Ajman, Fujairah
As a business establishment, taking care of complex corporate tax compliance can be intimidating, time-consuming, and can also lead to many errors. Therefore, hiring a corporate tax consultant in Abu Dhabi, Sharjah, Ras Al Khaimah, Ajman, and Fujairah is the best solution. Below are some of the services you can expect to get from corporate tax consultants in the UAE –
Corporate Tax Advisory Services: Corporate tax consultants are experts in the field of corporate tax who assess the applicability and impact of corporate tax implementation in the UAE. They advise the business entities on how to save taxes and the various exemptions that can be availed by them to minimize their tax liabilities. They also help businesses address the various challenges faced by them in relation to corporate tax.
Representation Services: The corporate tax consultants help the businesses represent themselves by submitting written documents, sending responses to the notices, and filing appeals against penalties and adverse tax adjustments made. In other words, they represent their clients in front of the tax department so that they can focus more on their business.
Compliance Services: The implementation of corporate tax in Abu Dhabi, Sharjah, Ras Al Khaimah, Ajman, and Fujairah comes with a lot of regulatory and compliance requirements that can be hard for businesses to understand and fulfill them. Corporate tax consultants help businesses to register for corporate tax, compute the tax liability and file their returns while fulfilling all the compliance requirements.
The implementation of the corporate tax in the UAE region is the latest addition to the existing taxes. UAE, for many years, has enjoyed the status of a tax haven for businesses, is now changing its taxation system with the introduction of Federal Corporate Tax. This is being done to bring the region’s taxation system in line with international standards.
Aviaan Accounting – Corporate Tax Consultant in Abu Dhabi, Sharjah, Ras Al Khaimah, Ajman, Fujairah
The new corporate tax regime could have a far-reaching impact on the way businesses operate. It might require businesses to understand the system thoroughly and make major changes in the business model, organization structure, accounting policies, business processes, and more. Therefore, taking professional help can help you understand the impact of this change on your business processes and also ensure that you meet all the legal and regulatory compliances related to registration, accounting, tax computation, and return filing.
Aviaan accounting is the top corporate tax consultant in Abu Dhabi, Sharjah, Ras Al Khaimah, Ajman, and Fujairah. Having a team of highly experienced and dedicated tax professionals, we can help you go through this change in a smooth manner and ensure 100% compliance.