Corporate tax UAE: Registration date, fines, exemptions and what you need to know

A standard statutory rate of 9 per cent took effect from the financial year beginning on or after June 1 last year

The UAE has announced new corporate tax registration deadlines for this year for eligible businesses.

Under a new decision that takes effect from March 1, businesses must register by a certain date depending on the month of their licence being issued, or face a fine of Dh10,000 ($2,722).

The National takes a closer look at what businesses should know.

New deadlines

Under the decision announced by the Federal Tax Authority (FTA), resident companies incorporated or established in the UAE before March 1 must stick to specific deadlines this year to register for corporate tax.

For example, if a licence was issued in January or February, regardless of the year, the business must submit its corporate tax registration application no later than May 31 to avoid breaking the law.

If a business has several licences, such as a group with several operations, the deadline is based on the "prior issued licence to determine the maximum timeframe", the FTA said.

Businesses established on or after March 1, including those in free zones, must register for corporate tax within three months of the date of incorporation, establishment or recognition.

A company established overseas but now managed and controlled in the UAE on or after March 1 must apply to register for corporate tax within three months of the end of their financial year.

Companies established overseas but operating in the UAE before March this year must apply to register for corporate tax within nine months of the date they started operations in the Emirates.

An overseas-based company that does business in the UAE must apply to register by May 31.

An overseas company relocating to the UAE that starts operating on or after March 1 has to apply to register for corporate tax within six months.

What is the tax rate?

The UAE introduced the federal corporate tax with a standard statutory rate of 9 per cent starting from the financial year beginning on or after June 1, 2023.

It brought the income of companies exceeding Dh375,000 ($102,110) within the taxable bracket. Taxable profits below that level will be subject to a tax of zero per cent.

In May, the Ministry of Finance confirmed that business owners in the country would be subject to corporate tax only if their turnover in a calendar year exceeds Dh1 million, ensuring that only business or business-related activity income is taxed.

That means that a business owner or entrepreneur making Dh500,000 from their business in a calendar year would not pay tax on their earnings.

For example, if a UAE resident operates an online business and the combined annual turnover from the business exceeds Dh1 million, under the new decision, that income would be subject to corporate tax.

However, if the resident also earns income from a rental property and personal investments, these sources of income would not be subject to the tax, as they fall under the out-of-scope categories, the ministry said.

How to register?

UAE businesses subject to corporate tax are required to register and obtain a tax registration number. Generally, the registration application must be submitted to the Federal Tax Authority.

Taxable businesses must file a tax return to the FTA no later than nine months after the end of the financial year.

The parent companies of tax groups should file one tax return to the authority on behalf of the whole group.

The FTA may also request certain exempt persons to register for corporate tax.

Who is exempt?

Several exemptions are offered for businesses operating in strategic sectors.

Those exempt from corporate tax include government entities, government-controlled entities, extractive and non-extractive natural resource businesses, qualifying public benefit entities and qualifying investment funds, public pension or social security funds, or private pension or social security funds.

Also exempt is an entity that is wholly owned and controlled by an exempt person if it undertakes part or all of the activity of the person, exclusively holds assets or invests funds for the benefit of the person, and only carries out activities that are ancillary to those carried out by the person.

In May, the UAE Ministry of Finance issued three new ministerial decisions that explain exemptions and the preparation of financial statements.

In April, the ministry also clarified that small businesses in the UAE with revenue of Dh3 million or less can benefit from a new corporate tax relief programme.

How does the UAE's corporate tax compare to global finance centres?

The standard statutory corporate tax rate of 9 per cent positions the UAE competitively when compared to other financial centres and developed economies.

The average top corporate tax rate among the EU countries is 21.3 per cent. The figure stands at 23.04 per cent among Organisation for Economic Co-operation and Development countries and 26.7 per cent in the G7, according to the Tax Foundation in Washington.

Corporate tax rates have declined over the past 40 years, with the worldwide average falling from more than 40 per cent to between 25 per cent and 30 per cent, Tax Foundation data indicated.

The UAE plans to keep the rate of corporate tax unchanged for the foreseeable future, Younis Al Khouri, undersecretary of the Ministry of Finance, told The National in January.