31 August 2023
Table of Contents
The Ministry of Finance of the United Arab Emirates (UAE) recently compiled a list of individuals and companies exempted from corporate tax registration. This move marks the introduction of the UAE Corporate Tax Law (Federal Act Law No. 47 of 2022) for tax years beginning June 1, 2023.
Unless specified conditions apply, taxable people and companies are required by Article 51 of the Corporate Tax Law to register for Corporate Tax with the Federal Tax Authority. The Ministry of Finance's latest judgment provides clear guidance on circumstances in which registration is not necessary.
The federal corporate tax rate in the United Arab Emirates (UAE) is set at 9% beginning of the financial year. Companies who are getting taxable profits over Dh375,000 ($102,110) are classified as taxable and have to pay 9% tax rate. Taxable profits below this amount are taxed at a rate of 0%, implying that no tax is imposed.
According to the Ministry of Finance UAE, entrepreneurs only need to pay corporation tax if their yearly turnover exceeds Dh1 million. This ensures that only money earned by businesses or business-related activities is taxed. For example, if a business owner or entrepreneur earns Dh500,000 in a calendar year, they don't have to pay tax on that income.
According to a recent ruling, if a UAE resident runs a digital company with more than Dh1 million in total yearly sales, he must pay corporate tax. Rental income and personal investments, on the other hand, would not be taxed because they fall under categories that are exempt from taxation under the ministry's rules.
Businesses subject to taxation in the UAE must register for corporation tax by following the registration process described by the Federal Tax Authority (FTA). Here are the essential steps:
Certain organizations and businesses are exempt from corporate tax in the UAE. Among the exceptions are:
Entities controlled by the government and those controlled by the government.
Natural resource companies, both extractive and non-extractive.
Qualifying public benefit entities and investment funds.
Funds for public pensions or social security.
Funds for private pensions or social security.
Entities entirely owned and managed by an exempt person, provided they execute activities on behalf of that person, exclusively hold assets or invest funds for that person's benefit, and only participate in activities ancillary to the exempt person's activities.
In addition, the UAE Ministry of Finance launched a corporation tax relief scheme for small enterprises with revenues of Dh3 million or less in April. These small firms can profit from this scheme, which will most likely give tax exemptions or lower tax rates.
The Ministry of Finance released three ministerial orders that provide additional clarification on exclusions and financial statement preparation.
These exemptions are intended to provide relief or unique benefits to organizations working in important industries or satisfying specified conditions, while small firms may benefit from additional tax breaks.
To fully grasp the exact eligibility criteria and circumstances for exemptions, it is best to consult the relevant authorities or seek expert guidance.
The corporate tax law adopted in the UAE intends to diversify the country’s economy by providing additional revenue to the government The program generates substantial annual revenue, which will be used to finance public infrastructure and services . . . .
This includes companies operating in the UAE, especially free zones, covering various sectors such as finance, manufacturing and construction
Companies and branches operating in the UAE are subject to 5% tax on taxable profits under the Corporate Tax Act. Some industries, such as oil and gas and finance, may have different tax rates than others. Some sectors, such as oil and gas and finance, may have different tax rates. The bill also offers tax benefits and incentives similar to those mentioned in the Ministerial Decision.
The law is part of the UAE’s wider efforts to build a strong and sustainable economy. In recent years, the government has implemented a number of fiscal reforms, including the introduction of a value added tax (VAT) in 2018 .
In summary, the recent announcement of the list of individuals and companies exempt from corporate tax registration marks a key milestone in the Corporate Tax Law's implementation in UAE. It is suggested to consultant Tax Consultant in Dubai. These exclusions are consistent with worldwide best practices and are intended to spur economic growth and investment. Entities and people that are not exempt from corporate taxes must follow the Corporate Tax Law and register with the Federal Tax Authority. The bill is expected to generate significant cash for the government while also supporting the UAE's efforts to diversify its economy.