What is Corporate Tax in UAE?
Corporate tax in the UAE is a tax levied on the profits of companies operating within the country. The UAE introduced a corporate tax on June 1st, 2023. Businesses operating in the country now need to pay corporate taxes on their net profits.
Background of Corporate Tax UAE
For years, the UAE has been a magnet for entrepreneurs and global corporations alike. Its growing business climate, complete with world-class infrastructure and a stable political landscape, made it a top choice for setting up shop. And the most appealing of all was the 0% corporate tax rate.
As one of the Middle East’s economic powerhouses, the UAE’s wealth traditionally flowed from its oil reserves. But the country has been cleverly diversifying its economy, reducing its reliance on black gold and exploring new avenues for revenue generation. One such avenue is the introduction of corporate tax.
Is Corporate Tax the Same as VAT?
Many people often mix up corporate tax and VAT. VAT is a tax you add to the price of goods or services when you sell them. It's like a small fee customers pay. Corporate tax is different. It's a tax businesses pay on their profits at the end of the year.
So, while everyone might pay VAT when they buy something, not every business will have to pay corporate tax. There's a specific limit you need to reach before you start paying corporate tax.
Who Needs to Pay Corporate Tax?
Not every business is required to pay corporate tax. While the rules can vary from country to country, there are some general guidelines.
Generally, businesses that need to pay corporate tax include:
Domestic Corporations: Companies formed and operating within a country's borders typically owe corporate taxes on their profits.
Foreign Corporations: Businesses based outside a country but operating within its borders through a permanent establishment (like an office or factory) often have to pay corporate taxes on income earned within that country.
Who might be exempt from corporate tax?
Small Businesses: Some countries have exemptions for small businesses based on revenue or number of employees.
Non-profit Organizations: Charities and other non-profit entities are often exempt from corporate tax.
Specific Industries: Certain industries might qualify for tax breaks or exemptions.
How Much Is the Corporate Tax UAE?
MOF, the regulatory body for the UAE corporate tax, has devised a taxation policy with three taxation tiers, which are:
