Common Errors for Tax Assessment Review in UAE
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The UAE government has announced a new federal corporate tax of 9% on business profits above AED 375,000. If you have any queries regarding the impact of this new tax on your business, our corporate tax UAE team is here to assist you. We offer a range of corporate tax services, including Corporate tax registration, corporate tax assessment, corporate tax audit, corporate tax return filing, and transfer pricing. We can help you optimize your tax position, reduce your tax liabilities, and avoid any penalties or disputes. To find out more about our corporate tax services in the UAE, Contact us today.
The corporate tax rate in the UAE stands at 9% for taxable income exceeding AED 375,000, effective from financial years commencing on or after 1 June 2023. In contrast, taxable income below this threshold will be subject to a 0% Corporate Tax rate. It's worth noting that large multinationals companies falling under Pillar Two may potentially face a higher tax rate of 15%. The table below provides a concise summary of corporate tax rates in the UAE:
| Tier | Taxable Income | Corporate Tax Rate |
|---|---|---|
| 1. | Up to AED 375,000 | 0% |
| 2. | Above AED 375,000 | 9% |
| 3. | Large multinationals Companies with Total annual revenue over EUR 750 million (around AED 3.15 billion) under Pillar Two of the Organisation for Economic Cooperation and Development (OECD) base erosion and profit shifting (BEPS) project. | 15% |
Requirement for Corporate Business Tax Registration
The UAE Federal Tax Authority mandates that all taxable individuals must register for UAE Corporate Tax and obtain a Corporate Tax Registration Number. However, non-resident individuals earning state-sourced income without a permanent establishment or nexus in the UAE are exempt from registration. This exemption is allowed because they will not have a corporate tax liability in the UAE, and their home country holds the primary taxing authority.
If an individual seeks exemption from corporate tax, such as an investment fund seeking to be treated as a qualifying investment fund, they must first register with the Federal Tax Authority before applying for exemption from corporate tax.
Who is subject to UAE Corporate Tax?
| Clause | Description |
|---|---|
| 1 | Taxable Persons |
| - UAE juridical persons, including Free Zone Persons (e.g., private or public joint stock companies, limited liability companies) incorporated or recognized under UAE laws. | |
| - Non-UAE juridical persons (incorporated outside the UAE) managed and controlled in the UAE. | |
| - Natural persons (individuals) conducting Business or Business Activity in the UAE (subject to Cabinet Decision). | |
| - Non-Resident Persons with Permanent Establishment or UAE sourced income under Corporate Tax. | |
| 2 | Categories of Taxable Persons |
| - Resident Person: Determined by specific factors outlined in the Corporate Tax Law, distinct from ordinary tax and legal residency. | |
| - Non-Resident Person: Taxable Persons not meeting Resident criteria. | |
| 3 | Resident Persons Criteria |
| - (a) UAE-incorporated juridical persons automatically considered Resident Persons. | |
| - (b) Juridical persons from foreign jurisdictions managed and controlled in the UAE are Resident Persons. | |
| - (c) Natural persons conducting Business in the UAE are Resident Persons for income derived from that activity. | |
| - (d) Cabinet Decision may include other Persons within Resident category. | |
| 4 | Non-Resident Persons Criteria |
| - (a) Non-Resident Persons with activities through Permanent Establishment in the UAE subject to Corporate Tax. | |
| - (b) Non-Resident Persons receiving State Sourced Income also considered Non-Resident for Corporate Tax. | |
| - (c) Cabinet Decision may specify other circumstances for Non-Resident classification. | |
| 5 | UAE Branches of Resident Persons |
| - UAE branches treated as extensions of head office; income and expenditure of all domestic branches included in Tax Return. |
What is the deadline for registering for business corporate tax in UAE?
According to the Federal Tax Authority (FTA) website, taxable persons have a registration period that lasts until their first tax filing deadline. For instance, if a taxable person has a financial year ending on May 31st, they have 26 months to register, meaning they can complete the registration process until February 28th, 2025. Similarly, if the financial year ends on December 31st, there is a 33-month period to register, allowing taxable persons to register until September 30th, 2025.
What is the penalty for not registering Corporate Tax in UAE?
| No. | Description of Violation | Administrative Penalty Amount in AED |
|---|---|---|
| 1. | Failure to keep required records and information under the Tax Procedures Law or Corporate Tax Law. | 1. 10,000 per violation. 2. 20,000 for repeated violation within 24 months. |
| 2. | Failure to submit tax-related data, records, and documents in Arabic as requested by the Authority. | 5,000 |
| 3. | Failure to submit deregistration application within the specified timeframe. | 1,000 for late submission, and 1,000 monthly up to a maximum of 10,000. |
| 4. | Failure to inform the Authority of information amendments for the Tax record. | One of penalties shall apply: 1. 1,000 per violation. 2. 5,000 for repeated violation within 24 months. |
| 1. | Failure to keep required records and information under the Tax Procedures Law or Corporate Tax Law. | 1. 10,000 per violation. 2. 20,000 for repeated violation within 24 months. |
| 5. | Failure of the Legal Representative to provide timely notification of appointment. | 1,000 |
| 6. | Failure of the Legal Representative to file a Tax Return within specified timeframes. | 1. 500 per month for the first twelve months. 2. 1,000 per month from the thirteenth month onwards. The penalty starts the day after the Tax Return deadline and continues monthly thereafter. |
| 7. | Failure of the Registrant to submit a Tax Return 1. 500 For each full or partial month within the specified timeframe. | 1. 500 For each full or partial month within the specified timeframe. throughout the first 12 months, 2. 1,000 for each month or part of a month after the thirteenth month. The penalty starts the day after the Tax Return deadline and continues monthly thereafter. |
| 8. | Failure to settle the Payable Tax. | A monthly penalty of 14% per annum, for each month or part thereof, on the unsettled Payable Tax amount from the day following the due date of payment and on the same date monthly thereafter. 1. The due date of payment is 20 Business Days from the date of submission in case of voluntary Disclosure. 2. The due date of payment is 20 Business Days from the date of receipt in case of Tax Assessment. |
| 9.. | Submission of an incorrect Tax Return. | 500 unless the Person corrects the Tax Return before the deadline. |
| 10. | Submission of a Voluntary Disclosure for errors in the Tax Return, Tax Assessment, or Tax refund application. | Monthly penalty of 1% on the Tax Difference until Voluntary Disclosure is submitted. |
| 11. | Failure to submit a Voluntary Disclosure before being notified of a Tax Audit. | 1. Fixed penalty of 15% on the Tax Difference. 2. Monthly penalty of 1% on the Tax Difference until Voluntary Disclosure is submitted or Tax Assessment issuance. |
| 12. | Failure to offer facilitation to the Tax Auditor in violation of Article (20) of the Tax Procedures Law. | 20,000 |
| 13. | Failure to submit or late submission of a Declaration as required by the Corporate Tax Law. | 1. 500 per month for the first twelve months. 2. 1,000 per month from the thirteenth month onwards. |
What is the due date for filing corporate tax return in UAE?
| Financial Year End | Applicability of Corporate Tax Law | First Tax Period | Return Filing Due Date |
|---|---|---|---|
| May 31st | June 1, 2023 | June 20, 2023 to May 31, 2024 | February 28, 2025 |
| December 31st | January 1, 2024 | January 1, 2024 to December 31, 2025 | September 30, 2026 |
Additionally:
Businesses with accounting period from June 1st to May 31st have 26 months for registration.
Businesses with accounting period from January 1st to December 31st have 33 months for registration.
What are Corporate tax filing, documentation, and other administrative requirements?
| Aspect | Details |
|---|---|
| Corporate Tax Registration | Businesses must register with the FTA and obtain a Tax Registration Number within the specified time frame. FTA can register qualifying entities if voluntary registration is not done. |
| Record-Keeping Requirements | Businesses must maintain financial and other records explaining corporate tax return details and submit them to the FTA. Exempted entities must maintain records to prove their exempted status. |
| Audited Financial Statements | The need for financial statement audits is determined by company laws. Free zone businesses must audit statements to avail the 0% corporate tax rate. Consult tax consultants for details. |
| Corporate Tax Deregistration | A person with a Tax Registration Number must submit a Tax Deregistration application to the Authority when their business ceases, following specified procedures and timelines. Deregistration is only allowed if all Corporate Tax, Penalties, and Tax Returns have been paid and filed. If approved, the deregistration is effective from the cessation date. Non-compliance may lead to deregistration based on specific criteria determined by the Authority. |
| Corporate Tax Return Filing | Businesses file one corporate tax return per tax period and related supporting schedules within nine months after the end of the relevant Tax Period. No provisional tax return or advance payments are necessary. |
| Corporate Tax Payments Refunds | The Corporate Tax Payable under the Corporate Tax Law must be settled within nine months from the end of the relevant Tax Period or as decided by relevant authority. Refunds are applicable in cases where Taxable Persons have overpaid and are owed money by the Authority. Consult tax consultants for assistance. |
| Corporate Tax Assessments | UAE corporate tax operates on a self-assessment principle. Businesses are responsible for accurate and compliant tax returns. FTA reviews and issues assessments within prescribed timeframes. Taxpayers can challenge amended assessments following procedures in the Tax Procedures Law. Consult tax agents for assistance. |
Is corporate tax applicable on Free Zones Company?
| Corporate Tax Rate | Applies to | Definition |
|---|---|---|
| 0% | Qualifying Income | A Free Zone Person who meets certain conditions and is taxed at a 0% UAE corporate tax rate on their qualifying income. |
| 9% | Taxable Income that does not qualify as Qualifying Income | A Free Zone Person who does not meet the conditions for Qualifying Free Zone Person. |
Qualifying Income includes the following categories of income, provided that such income is not attributable to a Domestic Permanent Establishment or a Foreign Permanent Establishment in the UAE:
1. Income derived from transactions with other Free Zone Persons, except for income derived from Excluded Activities.
2. Income derived from transactions with a Non-Free Zone Person only in respect of Qualifying Activities that are not Excluded Activities.
3. Any other income provided that the Qualifying Free Zone Person satisfies De Minimis Requirement threshold.
To be considered a Qualifying Free Zone Person, the Free Zone Person must meet all of the following conditions:
1. Maintains Adequate Substance in the UAE
2. Derives Qualifying Income
3. Has not specifically elected to be subject to Corporate Tax under the Corporate Tax Law
4. Complies with Transfer Pricing regulations
5. Maintains audited financial statements as per IFRS / IFRS for SMEs.
Is UAE Corporate Tax is applicable on SMEs?
Yes, the UAE Corporate Tax applies to small businesses operating in the UAE. However, the UAE government has introduced a Small Business Relief scheme designed to facilitate a smooth transition to the new tax framework for SMEs. As outlined in the Small Business Relief Guide published by the UAE Ministry of Finance, a taxable UAE resident entity can claim Small
Business Relief if its revenue does not surpass the AED 3,000,000 threshold for both the relevant and preceding tax periods within each tax year.
It's important to note that Small Business Relief is not applicable to:
businesses qualifying as Free Zone Persons under the Corporate Tax Law or
to members of Multinational Enterprises Groups (MNE Groups) with consolidated group revenues exceeding AED 3.15 billion, as defined in Cabinet Decision No. 44 of 2020.
Consequently, small businesses or SMEs in the UAE are eligible for Small Business Relief if their revenue remains below the AED 3,000,000 threshold for each relevant tax year.
What is Transfer Pricing rules?
Transfer pricing constitutes a set of rules and regulations governing the pricing of goods and services exchanged between related entities, including companies within the same multinational enterprise group. Its purpose is to prevent pricing anipulation influenced by their relationships.
In the UAE, transfer pricing rules have a substantial impact on businesses. Recently introduced by the UAE Ministry of Finance, these regulations mandate companies to conduct transactions with related parties at arm's length. This means the prices for goods and services must align with those in transactions between unrelated parties.
As per Ministerial Decision No (97) of 2023 on the Requirements for Maintaining Transfer Pricing Documentation, companies are obligated to maintain a master file and a local file under specific conditions:
If their revenues in a relevant tax period are at least AED 200 million.
If they are part of a multinational group with a total consolidated group revenue of at least AED 3.15 billion in the relevant tax period.
These documentation requirements serve to enable taxpayers to demonstrate the arm's length nature of their transactions with related parties and connected individuals. Standardized files are utilized to ensure consistency and accuracy in this process.
What is Country by Country Reporting?
The UAE has implemented Country-by-Country Reporting (CbCR) rules in line with the guidance issued by the Organization for Economic Cooperation and Development (OECD) on CbCR.
The CbCR rules apply to:
The Ultimate Parent Entity (UPE) of a Multinational Group of Entities (MNE) which is a ‘tax resident’ in the UAE and
If consolidated revenues equal to or exceeding AED3.15 billion (approximately USD858 million) in the preceding financial year.
The following table summarizes the CbCR requirements:
| Criteria | Requirement |
|---|---|
| Applicability | UAE-headquartered MNE Groups with ‘financial reporting years’ starting on or after January 1st 2019. |
| Filing deadline for CbCR Submission | Within 12 months from the end of the financial reporting year. For ex. The MNE Group, with a financial year from January 1, 2023, to December 31, 2023, must file the CbC Report by December 31, 2024. |
| Reporting format | Country-by-Country Report (CbC Report) |
| Reporting threshold | Consolidated revenues equal to or exceeding AED 3.15 billion in the preceding financial year. |
| Penalty for Non-Compliance | Individuals failing to file the CbCR on time may face an administrative fine of up to AED 1,000,000. Additionally, there is an additional fine of AED 10,000 for each day of delay, with a maximum cumulative fine of AED 250,000. |
Is Corporate Tax is applicable on freelancers?
Under the corporate tax laws in the UAE, any taxable income surpassing AED 375,000 is subject to Corporate Tax. This taxation framework also encompasses freelancers and independent contractors in the UAE who are self-employed, provided their income exceeds the AED 375,000 threshold.
The UAE's Corporate Tax system is extended to freelancers and other independent contractors who operate autonomously once their income surpasses the AED 375,000 limit. According to the law, these independent contractors must possess a valid license or permit.
Here are some key scenarios in which corporate tax applies to freelancers:
Individuals possessing the recently introduced freelance permit, accessible under the updated labor law for self-sponsored expatriates, are exempt from corporate tax on their income.
In the case of independent contractors holding business licenses within free zones, if they engage in work for other companies, the sponsoring entity is obligated to pay the corporate tax.
For freelancers employed by a company, their income from salaries remains untaxed at the individual level. Instead, it is the responsibility of the company issuing the visa to pay income tax on its net profit.
What is small business relief under UAE corporate tax?
The UAE Ministry of Finance has released an official decree concerning Small Business Relief, as outlined in Federal Decree-Law No. 47 of 2022, which pertains to the Taxation of Corporations and Businesses, often referred to as the "Corporate Tax Law." This decree is issued in accordance with Article 21 of the Corporate Tax Law, which essentially exempts taxable individuals or entities from having derived any taxable income in a specific tax period if their revenue falls below a designated threshold.
Small Business Relief is primarily designed to provide support to startups and other small or micro-sized businesses by alleviating their Corporate Tax obligations and reducing the associated compliance expenses.
| Small Business Relief | Threshold | Applicability and Duration | Tax Loss Relief and Interest Deduction Limitation Rule | GAAR |
|---|---|---|---|---|
| Reduces Corporate Tax burden and compliance costs for small businesses. | Revenue for the relevant and previous tax periods shall not exceed AED 3,000,000 threshold during each relevant tax year. | Applicable to subsequent tax periods that end before or on December 31, 2026. | Carry forward Tax Losses and any disallowed Net Interest Expenditure will only be allowed in tax periods where the Small Business Relief is not elected. | In the event a taxable person intentionally separates its business solely to meet the threshold of AED 3,000,000 and hence elects not to be subject to UAE CT, the Federal Tax Authority can make compensating adjustments to the UAE CT liability of the relevant taxable person. |
How do you calculate corporate tax?
In the UAE, corporate tax is computed at a rate of 9% based on the net profit indicated in the company's financial statements. This calculation is done after subtracting all eligible deductions and excluding income that is exempt from taxation. Foreign taxes paid can also be deducted from the profit stated in the financial statement. The taxable income is determined as the net profit remaining after all deductions. Corporate tax at 9% is applicable only if the taxable value exceeds AED 375,000. To calculate your corporate tax, use online corporate tax calculator. It will estimate your corporate tax liability.
Who is exempted from Corporate Tax in the UAE?
| Category | Type of Exempt Persons | Conditions for Exemption |
|---|---|---|
| Automatically Exempt Persons | Government Entities | None |
| Exempt upon notification and conditions | Extractive Businesses and Non-Extractive Natural Resource Businesses | Notify Ministry of Finance and meet relevant conditions |
| Exempt upon Cabinet Decision and conditions | Government Controlled Entities and Qualifying Public Benefit Entities | Listed in Cabinet Decision and meet relevant conditions |
| Exempt upon application and approval | Public and private pension or social security funds | Apply to and get approval from the FTA |
| Qualifying Investment Funds | Apply to and get approval from the FTA | |
| Juridical persons incorporated in the UAE owned and controlled by specific Exempt Persons | Apply to and get approval from the FTA | |
| Any other Person as determined by Cabinet Decision | Decision issued by the Cabinet at the suggestion of the Minister |
If an individual or entity classified as an Exempt Person no longer fulfills the necessary criteria for exemption, they typically lose their exempt status starting from the Tax Period in which the criteria are no longer met. Consequently, they become liable for Corporate Tax on all their Taxable Income.
However, in specific temporary and unforeseen situations, the individual or entity has the option to apply to the FTA. They can seek permission to maintain their Exempt Person status even if they temporarily fail to meet the exemption criteria.
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EU member states have agreed that companies with a worldwide revenue exceeding 750 million euros (equivalent to $735 million or 2.70 billion UAE dirhams) will be required to pay a minimum tax of 15%, regardless of the potential implementation of the OECD Pillar Two system in the future. This decision is a demonstration of the EU's commitment to enforcing internationally accepted guidelines for equitable and efficient taxation of multinational corporations on a regional level.
VAT and corporate tax are two separate forms of taxes imposed in the UAE. Companies are subject to and are responsible for paying corporate tax, which is a tax based on profits. The VAT, on the other hand, is a consumption-based tax that is paid by people who use the products and services they purchase.
While value-added tax is computed by adding the value at each stage of manufacturing, corporate tax in Dubai is based on earnings. Unlike with VAT, where businesses must charge VAT and return it to the FTA, firms are expected to file taxes and subsequently pay corporate taxes on the earnings. In conclusion, whereas value-added taxes are based on consumption and are imposed on consumers for the products and services they use, corporation taxes are assessed based on profits.
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Discover top-tier UAE corporate tax services at Corporate Tax UAE. Fta Approved Agents Providing registration, filing process, and corporate tax assessment. call +971 58 658 5338
Discover top-tier UAE corporate tax services at Corporate Tax UAE. Fta Approved Agents Providing registration, filing process, and corporate tax assessment. call +971 58 658 5338