Explainer: Difference between VAT and corporate tax

Corporate tax will be introduced in the UAE from June 1, with exemptions for some businesses and organisations

There will be no corporate tax levied on salaries or other personal income from employment. Antonie Robertson / The National

The UAE is taking a step forward on June 1 in expanding its revenue base when it introduces corporate tax next month.

The move will increase the country's taxation scope after the introduction of value added tax (VAT) in 2018. There are also duties applied to exports and imports on trade, which add to the government revenue.

The UAE government received Dh75 billion ($20.42 billion) in tax revenue in the fourth quarter of last year, up 29 per cent compared with the same period in the previous year, according to data issued by the Ministry of Finance in March.

However, authorities have clarified that there are no immediate plans to introduce income tax in the country.

Application of VAT in the UAE

VAT is a general consumption tax and is imposed on most goods and services that are bought and sold. It was introduced five years ago at a rate of 5 per cent and is applicable to most goods and services.

The supply of some financial services, residential properties, bare land and local passenger transport are exempt from VAT.

The supply of certain education services and healthcare services, and exports of goods and services to outside the GCC and certain investment-grade precious metals are subject to 0 per cent VAT, according to the Ministry of Finance website.

Tourists visiting the country can also claim a refund of 85 per cent of the VAT paid on goods bought in the UAE before they leave the country.

A business is required to register for VAT if its taxable supplies and imports exceed the notified threshold of Dh375,000.

Corporate tax in the UAE

Corporate tax is a profit-based tax levied on companies with a standard statutory rate of 9 per cent. It is applicable to companies whose income exceeds Dh375,000. Profits below that threshold will be subject to a 0 per cent rate.

There will be no corporate tax levied on salaries or other personal income from employment, be it in the government, semi-governmental entities or the private sector, according to the Ministry of Finance.

Government and government-controlled organisations as well as extractive businesses and non-extractive natural resource businesses that meet set conditions are not required to register under the tax law.

Other exemptions are available to organisations such as pension or investment funds and public benefit organisations.

Small businesses in the UAE with a revenue of Dh3 million or less can also benefit from a new corporate tax relief programme.