Being an entrepreneur is a million-dollar profession. Not only is it a delightful escape from tailing around the bosses, but it also introduces you to dominance and authority. Yet, there’s an appealing aura to being an entrepreneur and investor in UAE. We barely get to witness the implementation of digitalisation with as much brilliance as in Dubai, Ajman and Sharjah. 

This is one of the many reasons the UAE is home to a huge number of expatriates. And many more are seeking properties in Dubai and other emirates with the hopes of settling here.

We can’t doubt the country’s magnificence that speaks for itself. On the flip side, the lucrative business opportunities that tag along are unbeatable. That said, if you’re joining the profitable troop of investors shortly, there’s a queue of legalities to know. Speaking of legalities, we must introduce you to the surprising corporate income tax in UAE, coming to effect by 2023.

However, what is it, and what purpose does the taxation policy behold? Let’s find out below. 

What Is Corporate Income Tax in UAE: Facts That You Must Know

On 31st January 2022, the Ministry of Finance (MOF) stated that they would likely inaugurate the federal corporate income tax (CIT). According to them, this system will start working from 1st June 2023. 

This corporate tax regime aims to streamline financial practices and minimise the compliance burden on businesses. From June 2023 onwards, authorities will impose taxes on all commercial activities happening in the UAE. This tax will be payable to all the industries making profits out of their investments. 

Keep reading to discover the exceptions, limitations and exceptions attached with this taxation policy for businesses operating in the UAE. 

Objectives of the Corporate Income Tax Scheme 

The country aims to address the following ambitions by introducing corporate income tax in the UAE:

  1. We all would agree that UAE is a land of second chances for everyone. With this in mind, the state is levelling its position as a ruling global hub for businesses and investments.
  2. The country wants to accelerate its developmental projects to achieve its strategic objectives with the recent scheme. 
  3. The UAE wants to keep its position as one of the safest platforms for business activities and residential schemes. By introducing this tax regime, it’ll commit to meeting all the international standards to prevent adverse tax practices.

Scope of Corporate Income Tax Scheme 

The scope of this corporate income tax in UAE isn’t boundless but only confined to a specific business class. Head over to the details below:

  1. Every business operating in the UAE with a commercial licence is eligible for taxation.
  2. Foreign investors running a trade or business regularly in the country are tax-paying entities.
  3. Taxation also applies to businesses occupied with real estate management, construction, or brokerage practices.
  4. All banking operations, including investments and commercial practices, have to pay the tax.
  5. As long as free zone businesses comply with all the regulatory requirements and don’t run a set-up in UAE’s mainland, the country will continue to honour the incentives granted to them. 

Exemptions from Corporate Tax Scheme

As mentioned above, only some businesses are eligible for the latest taxation law. There are a few exemptions as well. Take a look at them:

  1. UAE exempts such businesses dealing with raw material extraction as they remain subject to the current Emirati-level corporate taxation.
  2. Businesses earning dividends and capital gains from their qualifying shareholdings aren’t responsible for corporate income tax in UAE.
  3. Charities and NGOs listed with Cabinet Decision aren’t obliged to pay the tax.
  4. If a company is making a profit outside of the UAE and paying taxes to that state, they aren’t answerable to ministries in UAE.   
  5. Any personal income of employees, real estate, equity and investments won’t be subjected to corporate income tax in UAE. 

Exceptions of Corporate Tax Scheme 

Remember that the upcoming taxation regime is specifically designed for businesses upon the profits that they’re generating. Working class and freelance employees have nothing to do with it. With that said, consider yourself out of the race if you meet the criteria of any pointers mentioned below.

  1. The working class and all the wage-earners associated with the public and private sectors.
  2. Profit earned by any individual from bank deposits and saving schemes. 
  3. Investments made by entrepreneurs in real estate and properties.
  4. Individuals who earn capital gains, dividends, and other revenues from owning shares and other securities.
  5. An international investor’s income by dividends, capital gains, interest rates and additional ROI.

Rates of Corporate Tax Scheme 

Corporate income tax in the UAE varies from business to business. Likewise, the rates are determined by the profit margin a company has. To make it easy for the entities, the Ministry of Finance has granted an overview of prices, which are:

  1. There will be a 0% for taxable income within AED 375,000.
  2. A 9% for taxable income above AED 37,000.
  3. While it has yet to be confirmed, the ministries have decided to meet specific criteria for multinational companies.

More about the Corporate Tax Regime

As a leading jurisdiction for investment, the UAE has been playing a pivotal part in helping businesses grow locally and globally. The delightful blend of the award-winning taxation regime and UAE’s unstoppable progression will curate something exceptionally lucrative. And so we assume that the scheme has the potential to cement UAE’s position as an award-winning hub for organisations.

It’s a Wrap 

Do you know that most businesses in the UAE have already started working on their corporate income tax assessment? Although the policy hasn’t come to function, it has gotten on everyone’s nerves to stay ahead of others. If you’re concerned about joining the bandwagon, early preparation will come in handy for avoiding higher implementation costs.

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