Will Foreign Companies Be Subject to Corporate Income Tax in the UAE? Key Insights and Implications

Corporate tax in UAE is a form of direct tax applied to the net revenue or profit of firms and other legal entities. All enterprises operating in the United Arab Emirates will be liable to the corporate income tax UAE, except those engaged in the extraction of natural reserves, which will continue to be taxed at the Emirate level. Corporate Tax will only apply to foreign companies that carry on regular trade or business in the UAE. All types of yields and other revenue reflected in the financial statements elicited by generally comprehended accounting principles shall be subject to corporate tax law on an equal basis.

Corporate Income Tax Applicability to Foreign Companies

Under the Corporate Tax regime, a legal entity formed in the United Arab Emirates such as a limited liability company, private shareholding company, public combined stock company, or other entities will be subject to corporate tax. Corporate tax in the UAE will apply to foreign corporations that are legally governed and monitored in the mainland. The corporate tax regime will be applicable to non-resident companies' taxable revenue from a permanent establishment in the United Arab Emirates and income that was earned there. If a foreign company conducts all or part of its business from a fixed location in the UAE, that location will constitute a permanent establishment under UAE law. 

A fixed place is typically defined as a place of administration, a department, a headquarters, a factory, a workshop, real estate, or a construction site where operations continue for more than six months. In the absence of a permanent location in the United Arab Emirates, a foreign company may also initiate a Permanent Establishment under a "dependent agent." The dependent agent trial will typically apply when an enterprise traveler or an individual operating on behalf of a foreign firm established in the UAE has the power to enter into pacts in the name of the exotic enterprise and without the material involvement of the foreign organization. Overall, foreign individuals or businesses are required to pay corporate taxes if they conduct any regular business in the UAE. 

Exemptions to Company Corporate Tax 

All kinds of below-mentioned incomes are exempted from Company Corporate tax: 

• Capital Gains
• Group Organization Profits
• Intra-Group Organization Transactions and Profits
• UAE withholding tax may not apply to local or international transactions in the concern with the exempted income scheme, It can be predicted that the Law will include a collaboration exemption or related guidelines frequently seen in international markets, and businesses would need to assess their ability to satisfy the requirements (if any) to take advantage of the exempt income scheme.

What criteria will the authorities use to decide whether a foreign company is subject to UAE corporate tax rate?

Generally, this will be executed concerning a person who has (or is expected to obtain) a business permit to engage in pertinent marketable, industrial, or professional workouts in the UAE.

How will the authorities calculate the revenue or profits of the business that is liable to corporation tax in the UAE?

After making adjustments on particular facets that are required to be reported by the Corporate Tax law UAE, the firm's accounting net earnings will be considered its taxable earnings. The payment depicted in the financial statements made by generally approved accounting principles is the accounting net dividend of a firm.

Read More: Corporate Tax Rate for large companies that are part of multinationals

Is it difficult for UAE companies to comply with the new corporate tax law?

Tax laws are sometimes difficult to adhere to for businesses, however, it is not impossible. A corporate tax advisor can assist businesses by providing advice on the taxability of transactions and enforcing that the company complies with the UAE corporate tax regime. Tax planning must be taken into account as an enterprise policy to reach the objectives, as every company hopes to turn revenue. An elevated degree of expertise and professionalism in levy planning can be seen in corporate tax consultants. These services are promising planning results in tax conservation and increase the company's revenue. Before the introduction of Value Added Tax at a standard rate of five percent on 1st January 2018, the UAE was primarily recognized as a tax-free nation. Thus, to avoid any possible error or sanction, you should seek the help of a professional corporate tax consultant who is well aware of the terms and conditions of corporate tax law.

Choose the Best Corporate Tax Advisory Services

Companies are highly advised to belt up for the new corporate tax regime effective from June 2023. Avail premier consultation and guidance from approved Corporate Tax agents today! Our expert team can efficiently guide you on the applicability and compliance patterns of Corporate Tax. So, contact us today and we shall be happy to assist you.