For a long time, the UAE has established itself as a worldwide business centre. A beneficial tax system operates to draw local and international business entities into the UAE. Businesses will learn to maintain compliance through periodic updates of laws because corporate tax now exists in the UAE. Organisations operating in the UAE need to devote efforts to learning about changing tax regulations.
Some essential taxation principles that all business entities must understand are detailed within this guidance, including corporate tax together with VAT and excise duties, among others.
- Corporate Tax in the UAE
The United Arab Emirates imposes corporate tax only through restrictions on activities or sectors, which currently include oil and gas plants and foreign banking institutions. Different businesses will feel the impact of the new corporate tax implementation which was introduced by the federal government in 2023.
Corporate Tax Rates
- 0% Tax Rate: Businesses earning up to AED 375,000 are exempt, offering relief for small enterprises and startups.
- 9% Tax Rate: The taxable profits are over AED 375,000.
- 15% Tax Rate: Multinational companies that generate global revenues over AED 3.15 billion could face a 15% tax rate under the OECD’s BEPS 2.0 framework.
Corporate tax is applied to net profits after deducting allowable business expenses. Companies must assess their eligibility and register accordingly to comply with these requirements.
Exemptions and Special Considerations
- Free Zone Companies: Free zone entities may have tax exemptions if they meet some conditions and do not carry on trade within the mainland UAE.
- Government-Owned Enterprises: Tax on certain state-owned enterprises is exempted.
- Foreign Companies: Companies without a fixed presence in the UAE will be exempt from corporate tax unless they perform some form of local business activities.
- Value Added Tax (VAT)
VAT is part of the UAE’s diversification economic policy, which was introduced in 2018. It operates on most kinds of goods and services, while health care, education, and finance are exempted services.
VAT Rate and Registration
- 5% Standard VAT Rate: The lowest VAT rate in the GCC region.
- Mandatory Registration: Companies whose taxable supplies are more than AED 375,000 a year must register with the FTA.
- Voluntary Registration: At least taxable supplies of AED 187,500 can still qualify for VAT registration to be eligible for input VAT claims.
Tax agencies impose a statutory quarterly or annual submission of VAT returns, depending on the revenue size of the entity. Companies should keep proper records in compliance with bookkeeping requirements.
- Excise Taxes
Excise tax encompasses certain products that harm the health or well-being of the population or environment. The manufacturer, importer and seller of these products must register with the FTA and then submit other mandatory registries.
Excise Tax Rates
- 50% on Carbonated Drinks
- 100% on Energy Drinks and Tobacco Products
Companies must make proper documentation and file excise tax returns accordingly.
- Customs Duty
The United Arab Emirates imposes customs duties for imported goods as a member of the GCC Customs Union, with a few exceptions for essential items such as food and medicines.
Key Rates of Customs Duty
- 5% is the general rate applied to most imported goods.
- Exemptions include certain goods, primarily pharmaceuticals and educational materials, which qualify for duty-free status.
Companies are expected to calculate and comply with customs duties concerning importation activities.
- Withholding Tax
At present, the UAE government does not apply withholding taxes to foreign payments of interest, dividends or royalties to overseas entities. Foreign investors choose the UAE as their destination due to the opportunity for tax-free outbound payments, which makes it their top preference.
Before carrying out cross-border transactions companies should study UAE tax treaties with other nations to prevent paying taxes twice.
- Economic Substance Regulations (ESR)
ESR was introduced in 2019. This has been intended to prevent UAE tax avoidance. It has been characterised by the requirement that businesses involved in specific activities can only claim a genuine economic presence in the UAE.
Major Compliance Obligations
- Substantial Operations: A business shall demonstrate evidence of a physical presence, such as offices, employees, and active management in the UAE.
- Annual Reporting: Undertaking organisations conducting relevant activities must file reports disclosing their operational substance.
Failure to comply can result in penalties and limitations on tax treaty benefits.
- Tax Compliance and Reporting
Businesses in the UAE are required to comply with all tax compliance in order not to incur financial or legal penalties.
Key Compliance Features
- Registration: Firms undertaking VAT and Excise Tax business are required to register with FTA.
- Submission of VAT and Corporate Returns: VAT and corporate tax returns must be submitted within stated timelines.
- Accounting: The firm is legally required to hold accounting records comprising invoices and taxation returns, among other expense records, for five years.
Final Thoughts
The current tax revisions in the UAE reflect the commitment of the country to keeping up with international standards while continuing to offer an enabling environment. Although taxes are competitive, all these changes should be updated to avoid non-compliance risk.
For companies navigating tax obligations, seeking expert advice can simplify processes and reduce uncertainties. Vista Accounting and Tax Consultancy provides professional guidance to help businesses structure their tax affairs efficiently and meet all regulatory requirements.
Understanding UAE taxation is necessary whether you are starting a new venture, obtaining additional operational space, or restructuring your business for the long term. Contact our experts today and be ahead of your competitors in terms of compliance while you keep your focus straight on the growth of your business.