WHAT IS CORPORATE TAX IN THE UAE?
Corporate tax in the UAE applies to the taxable income (i.e., net profits) of eligible business entities based in the country. This new taxation regime took effect on June 1, 2023, and most businesses will become fully taxable by January 1, 2024.
Emir Alliance provides comprehensive guidance, including:

• Evaluating how corporate tax might affect your enterprise’s revenues and profits.
• Identifying potential exemptions, relief measures, or incentives.
• Assisting with tax registration and documentation to ensure deadlines are met without penalties.

• Corporate Tax is required for nearly every company once they surpass a certain profit threshold, focusing on net business income.
• VAT is a consumption-based tax levied on goods and services at the point of sale, with registration triggered once a business’s revenue exceeds specific limits.

In essence, VAT is collected from customers and passed on to the government, while corporate tax is applied directly to a company’s net profits rather than its gross sales.

The MOF has instituted three tiers for UAE corporate tax:

1. 0% for businesses earning up to AED 375,000 in net annual profit.
2. 9% for businesses exceeding AED 375,000 in net annual profit.
3. 15% for large multinational enterprises with worldwide revenues above EUR 750 million (around AED 3.15 billion). This aligns with the OECD’s Base Erosion and Profit Shifting (BEPS) initiative.

Certain entities are fully exempt from corporate tax and do not have to file annual returns. They include:

• Government and public-sector entities (federal and local), along with affiliated agencies.
• Businesses involved in extracting or producing natural resources (already subject to Emirate-level taxation).
• Charities and social organizations, provided they are officially registered and meet conditions set out in Cabinet Decision No. 37 of 2023.
• Regulated investment funds, upon receiving formal approval from the MOF and FTA.
• Companies fully owned and controlled by the UAE government, as listed by ministerial decree.
• Public or private pension and social security funds, fulfilling the requirements of Ministerial Decision No. 115 of 2023.

Beyond exempt entities, certain types of income may also be excluded from corporate tax, including:

• Dividends and similar profit distributions from UAE-based juridical entities (Article 22, Corporate Tax Law).
• Dividends from a “participating interest” in a foreign juridical entity.
• Capital gains from selling shares of a subsidiary.
• Foreign exchange gains or capital gains tied to domestic or international participating interests.
• Earnings by non-residents derived from operating or leasing ships or aircraft for international transport.
• Revenue from a foreign branch or Permanent Establishment that opts for the ‘Foreign Permanent Establishment’ exemption.

For dividend-related deductions, the UAE parent company must generally hold at least 5% of the subsidiary. Certain countries, such as the UK, may impose a minimum 10% ownership for ten consecutive months.

Free Zone Persons (entities registered in any of the UAE’s free zones) may be eligible for a 0% tax rate if they meet all conditions to qualify as a Qualifying Free Zone Person (QFZP), including:

• Generating “Qualifying Income” from permissible activities, as specified in Ministerial Decisions No. 139 and No. 265 of 2023.
• Maintaining adequate economic substance in the free zone.
• Opting not to be taxed at the standard rate.
• Complying with transfer pricing rules.
• Ensuring non-qualifying income does not exceed 5% of total revenue or AED 5 million (whichever is lower).

Entities operating in free zones should assess their activities and ensure they meet the above criteria to secure QFZP status.

As noted earlier, the MOF also considers a range of circumstances in which income can be exempt, notably:

• Dividend income from UAE-resident or foreign entities meeting minimum ownership thresholds.
• Capital gains from disposing of shares in a subsidiary.
• Revenue from foreign branches that either qualifies for a tax credit or chooses an exemption election.

For example, when a UAE company holds at least 10% of the ordinary shares in a UK entity for ten consecutive months, the associated dividend income may qualify for a tax deduction in the UAE.

Mandatory Registration

A business must register for VAT if the total value of its taxable goods or services exceeds AED 375,000 over the past 12 months, or is expected to cross that threshold in the next 30 days.
Voluntary Registration
A business may register for VAT on a voluntary basis if the total value of its taxable goods or services surpasses AED 187,500 over the previous 12 months, or is anticipated to exceed that amount within the upcoming 30 days.

1. VAT in Dubai Is Imposed at a Flat Rate of 5%
All taxable supplies of goods and services, including imports, are subject to a 5% VAT rate, except for certain exempt or zero-rated categories. A “taxable supply” refers to any provision of goods or services for consideration by a registered business in the UAE. Examples include retail transactions, restaurant services, and various entertainment activities. Most new business ventures will likely be categorized as taxable supplies unless specifically exempt.

2. Some Activities Qualify for a 0% VAT Rate
Even if your business provides taxable supplies, some goods or services may fall under a 0% VAT category, requiring you to list 0% on invoices. Common zero-rated items include:

• Goods and services exported outside GCC member states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE).
• International transportation of passengers and goods.
• The supply of crude oil or natural gas.
• Investment-grade precious metals (e.g., silver or gold with a purity of at least 99%).
• Certain healthcare and education services.
• Newly built residential properties (supplied for the first time within three years of construction).

Zero-rated status differs from “exempt”: if your business supplies zero-rated goods, you still must register for VAT and submit invoices, but the rate is 0%.

3. Specific Services Are Exempt From VAT Altogether
Unlike zero-rated transactions, exempt supplies do not require you to file or charge VAT. The main exempt categories include:

• Financial services, such as currency exchange, loans, and deposit accounts (subject to certain conditions).
• Residential property (excluding hotels, motels, and other short-term accommodations).
• Vacant land that remains undeveloped.
• Local passenger transport, whether by land, water, or air, from one location to another within the UAE.