Corporate Tax in the UAE is a federal tax levied on the net income or profits of businesses operating within the country. It is designed to align the UAE with global tax standards, enhance revenue generation, and support economic diversification beyond oil and gas revenues.

 The Corporate Tax regime came into effect in UAE  on June 1, 2023, and applies to most business activities within the UAE, including both mainland and free zone companies, though there are specific rules for certain entities.

In the UAE, a taxable person is subject to Corporate Tax if they meet certain criteria defined under the UAE's Corporate Tax Law. A taxable person can either be a Resident Person or a Non-Resident person. The scope of taxation varies based on residency, the nature of the business activities, and the income threshold.

Tax Rate:

   - 0% on taxable income up to AED 375,000.

   - 9% on taxable income exceeding AED 375,000.

Types of Taxable Persons:

1. Resident Person:

   A Resident Person is generally subject to Corporate Tax on their worldwide income derived from UAE or foreign sources.

 Who qualifies as a Resident person?

     - Companies incorporated or established in the UAE, including mainland companies.

     -Free zone entities, if they engage in business activities in the UAE mainland (or if they don't meet the specific criteria for tax incentives).

     - Individuals conducting business in the UAE, such as sole proprietorships or freelancers registered with a commercial license.

2. Non-Resident Person:

   A Non-Resident person is generally subject to Corporate Tax on their UAE-sourced income. This applies to businesses not incorporated or established in the UAE but conducting business or having a permanent establishment in the UAE.

  Who qualifies as a non-resident person?

     - A foreign company that has a permanent establishment (PE) in the UAE. A PE generally refers to a fixed place of business in the UAE where business activities are carried out, such as a branch, office, or significant business presence.

     - A foreign company that derives income from UAE sources without having a permanent establishment. This could include income such as royalties, dividends, or capital gains derived from UAE sources.

 Categories of Taxable Persons:

1. Legal Persons:

   - These include entities incorporated or established under UAE law, such as Corporations, Limited Liability Companies (LLCs), partnerships, and others.

2. Natural Persons (Individuals):

Individuals are not generally subject to Corporate Tax unless they conduct a business or commercial activity for which a commercial license is required. Freelancers or sole traders who operate as licensed businesses could be subject to Corporate Tax on their business income.

3. Qualifying Free Zone Persons:

   -Free zone entities that meet the specific regulatory and business requirements, can benefit from a 0% Corporate Tax. However, if they engage in business with mainland in UAE, they may be subject to Corporate Tax at 9%.

 Exempted Taxable persons

      -Businesses engaged in the extraction of natural resources are exempt from CT as these businesses will remain subject to the current   Emirate level corporate taxation.

     - Government entities and wholly government-owned companies conducting non-commercial activities.

     - Entities involved in public benefit activities, such as charitable organizations.

     - Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from CT.

     -Qualifying intra-group transactions and reorganizations will not be subject to CT, provided the necessary conditions are met.

   - Personal income, such as wages, salaries, dividends, and capital gains from personal investments is not subject to Corporate Tax.

How to stay compliant??

Businesses are required to register for Corporate Tax and file annual tax returns. The tax return must be filed within nine months of the financial year-end.

With most companies in UAE is operating on a fiscal year that ends on 31 December, the first taxable period will be from 1 January 2024 to 31 December 2024 setting the first Corporate Tax Return Fling deadline to 30 September 2025.

Businesses will need to maintain all relevant records and documents for seven years following the end of the tax period to which they relate. This is critical for maintaining compliance with UAE tax regulations and facilitating any future audits.

By partnering with ZIDINI, you can ensure that your business remains compliant with UAE Corporate Tax laws, reducing the risk of penalties and optimizing your tax position. Our expert team will help streamline your Corporate Tax registration and return filing  processes and keep you informed about regulatory changes.