In light of the UAE’s recent Corporate Tax Law, companies operating within the UAE need to understand the implications for their businesses. This new legislation mandates that businesses with annual revenue exceeding AED 3 million (around $816,000) are subject to a 9% corporate tax rate. This guide by YUGA Accounting & Tax Consultancy provides insights into calculating corporate tax payable and understanding applicable deductions.
Corporate Tax Obligations Under UAE Law
The UAE Corporate Tax Law applies to various income sources for entities operating within the country:
- Commercially Licensed Entities
Income from activities conducted under a commercial license, such as:- Sales of goods and services
- Returns on investments (interest, dividends, capital gains)
- Rental income from property and real estate ventures
- Other business activities within the UAE
- Free Zone Businesses
- Income from activities within designated free zones
- Transactions with UAE mainland businesses, as long as free zone conditions are met
- Foreign Entities Operating in the UAE
Income earned through a permanent establishment in the UAE, such as:- Services or contracts performed within the UAE
- Sale of goods/services to UAE-based clients
- Banking Sector Income
Earnings from banking operations, including:- Interest, fees, commissions, and related banking activities
- Investment income (interest, dividends, capital gains)
- Foreign exchange transactions and financial services
- Real Estate Businesses
- Revenue from property sales, leasing, and rental
- Real estate development, construction, and management services
- Brokerage and agency fees from property-related transactions
Deductible Expenses
To compute taxable income, businesses may deduct reasonable expenses directly associated with earning income. Allowable deductions include:
- Employee Salaries and Wages
- Rent and Utility Costs
- Depreciation and Amortization
- Interest Payments (up to 30% of EBITDA)
- Client Entertainment Costs (50% deductible)
Non-deductible expenses for tax purposes include:
- Bribes and Penalties
- Certain Donations
- Dividend Distributions
UAE Corporate Tax Rates
The standard corporate tax rate under UAE law is 9% on taxable income exceeding AED 3 million, with specific rates for certain income types:
- Oil and Gas Revenue: Subject to a progressive tax rate.
- Natural Resource Royalties: Generally exempt from corporate tax.
- Free Zone Income: May be exempt if conditions are met.
| Income Type | Corporate Tax Rate |
|---|---|
| Income up to AED 3 million | 0% |
| Income above AED 3 million | 9% |
| Large Multinationals (per OECD) | Special rates apply |
Key Steps for Compliance
- Corporate Tax Registration
All entities with over AED 3 million in revenue, including free zone and some non-resident businesses, must register for corporate tax. - Record Keeping
Taxable businesses are required to maintain records for at least seven years. - Filing Annual Returns
Businesses must file tax returns annually within nine months after the end of each financial year.
FAQs on Corporate Tax
- What is Corporate Tax Payable?
The amount due based on taxable income under the UAE corporate tax rate. - How is Corporate Tax Calculated?
By applying the corporate tax rate (usually 9%) to the taxable income. - What Deductions Are Allowed?
Expenses incurred solely for generating taxable income may be deducted.
Conclusion
The introduction of corporate tax in the UAE marks a new chapter for businesses operating in the region. By understanding the different income categories and tax rates, businesses can navigate these changes smoothly. For expert guidance and up-to-date tax compliance support, YUGA Accounting & Tax Consultancy is here to help manage your corporate tax responsibilities effectively.
FOR MORE INFORMATION, CONTACT US :
Phone : +971 52 1952 532 / +971 4 240 1110
Mail-Id : info@yugaaccounting.com
Website : www.yugaaccounting.com