How do i calculate my corporation tax?

The net revenue or profit of enterprises in the UAE is subject to corporate tax, a type of direct tax recently announced in the UAE. A competitive corporate tax regime based on international best strategies will strengthen the UAE's stance as a top business destination and investment center and speed up the country's growth and changeover to meet its strategic goals.

The UAE's affirmation of upholding worldwide norms for tax clearness and avoiding unfair tax practices is reiterated by the introduction of a corporate tax framework. The original law will be enforced in the next year 2023 with complete effect.

We will briefly look at the proposed approach for the calculation of paying corporate tax in UAE. 

What Are Applicable Corporate Tax Rates?

• Applicable Corporate Tax Rates

  • Corporate tax rate is 9% of net profit after deducting all expenses and removing exempted income.
  • Taxable income not exceeding 375,000 dirhams incurs a 0% corporate tax rate.
  • Tax rate of 9% applies when taxable income exceeds 375,000 dirhams for local businesses in the UAE.

• Simplification of Corporate Tax Regime

  • Ministry of Finance aims for a straightforward corporate tax regime.
  • Simplification alleviates compliance burdens and costs, particularly for small businesses.
  • Larger businesses may bear heavier compliance costs but benefit from clear tax regulations.

• Support for Small and Medium-Sized Businesses

  • In contrast to many countries, UAE's corporate tax regime offers significant relief to small and medium-sized businesses.
  • Simplified financial and tax reporting obligations facilitate small business operations.
  • Supportive policies encourage investment in small start-ups and foster entrepreneurship.

Businesses that find all these calculations difficult can consult advisory services in the UAE to understand the corporate tax law better.

 

Read more: How to Calculate your Corporation Tax Bill in UAE

What Terms are Mentioned About Withholding Tax in UAE Corporate Tax Regime?

Interestingly, there is a 0% withholding tax applied to businesses that are dealing with domestic and cross-border payments. The main goal behind this relief is to lead the UAE as a worldwide business centre and international financial hub. Let's see the incomes upon which withholding tax is zero. 

• UAE sourced revenue gained by a foreign corporation that is not accreditable to private equity (PE) in the UAE of that overseas firm.
• Landmass UAE sourced income generated by Free Zone Person who is taking advantage of zero percent corporate tax rate. However, when profit is accreditable to the mainland branch of Free Zone Person then your business is not free from withholding tax.
• Revenues and other profit distributions made to a mainland UAE shareholder in a free zone person who privileges from the 0% corporate tax rate.

How Corporate Tax is Calculated?

To comply with the corporate tax law easily effective from  June 1, 2023, it is better to learn things like the calculation of corporation tax in advance. Taxable income of the financial tax period will define the amount subject to tax. The following features will clear out the process for corporate tax payable;

 

• Companies pay a corporate tax of 9% on their net profit, after deducting all expenses  and takes care of its costs and removes exempted income.
• If the total amount of final taxable income is between AED 0 - AED 37,500, UAE corporate tax payable will be zero percent.
• If the final taxable income is above 37,500 AED, then nine 9% corporate tax will be applicable over the difference between net financial revenue and AED 37,500 .
• Corporate tax liability is open to both cases that we mentioned earlier.

Read More: Requirements for Corporate Tax Compliance in UAE

Tax Credits

Companies established in the UAE will be liable to corporate tax on all of their revenue, including overseas earnings that could have previously been liable to a tax comparable to Corporate Tax by another nation.

The initiative of corporate tax in the UAE shall authorize credit for the tax paid in a foreign jurisdiction against the UAE Corporate tax liability on the exotic generated revenue that has not been otherwise freed to stave off twofold taxation. That's all we call foreign tax credit. 

You can avail of maximum foreign tax credit over the tax amount that compensated overseas jurisdiction and foreign-sourced income. If you did not utilize foreign tax credit in your respective taxable period, you cannot hold it forward or back to any other financial period. The Federal Tax Authority is not expected to refund unused foreign tax credits.

We can see that the process of calculating corporate tax is quite simple. However, corporate tax advisory services can add more value to your business by keeping you up to date. Corporate tax advisors provide planning services according to the latest regulations and laws. Moreover, they keep you fully aware of foresighted tax compliance policies.