Since June 2023, the UAE has introduced a corporate tax regime, which provides for the following rates:
- 0% from income up to 375 000 AED/year;
- 9% on income over 375 000 AED/year.
This tax applies to both resident and non-resident companies that have local income or their representative offices in the UAE. In particular, corporate tax will be paid by all resident individuals who conduct a “business” or “business activity” in the UAE and have a turnover of more than 1 million AED/year.
For companies that are incorporated in FEZs, there are special tax rules that provide for exemption from 9% corporate tax if the company:
- did not choose the general system of taxation;
- generates qualified income;
- has adequate substance in the UAE;
- complies with transfer pricing requirements
- audits financial statements.
Qualified income is:
- Income received from companies in FEZs (other than income from excluded activities)
- income from qualified activities received from persons outside the FEZ
- any other income (within the minimum threshold)
- additional income in the FEZ or from qualified activities.
Qualified activities include: logistics, trade in goods or resale in FEZs, aircraft leasing, ship operation, reinsurance services, fund management, capital management, financial services, securities holding, commodity production and headquarters services.
Importantly, for a FEZ company that qualifies for tax exemption, only up to 5% of non-qualified income of the company's total income or AED 5,000,000 per year, whichever is the lower amount, is allowed. If this indicator is exceeded, a company from the free zone loses all benefits and is taxed according to the general system.
If any of the above conditions is not met, the person ceases to be qualified in the free zone during the relevant tax period and the subsequent four tax periods.
Also exempt from taxation are state-owned companies and organizations, extractive businesses, public organizations, investment funds, pension and social insurance funds, etc.
Corporate tax does not apply to income such as:
- Dividends and other forms of profit distribution received from a resident company or received from a participation interest (over 5%) in a foreign company
- Interest income (capital gains, foreign exchange gains/losses and impairment gains/losses)
- Income from a permanent establishment (provided that the source of income is taxed abroad at a rate of at least 9%)
- Income received by a non-resident from the operation or lease of aircraft or ships used in international transportation on a reciprocal basis
Value added tax (VAT) has been introduced in the Emirates:
- the standard tax rate of 5% is levied on the import and export of goods/services when they are sold on the territory of the UAE to residents of the UAE;
- 0% rate is applied when importing and exporting goods/services on the territory of the UAE FEZ, outside the member countries of the Cooperation Council for the Arab States of the Gulf (Bahrain, Qatar, Oman, UAE, Saudi Arabia, Kuwait), for international transportation and other services, prescribed in the Law;
- tax exemption is provided for certain financial services, life insurance, non-income-generating residential real estate, local passenger transport, etc.
Mandatory registration as a VAT payer is required for:
- UAE onshore companies (local and registered in the FEZ) that supply goods or provide services to individuals and legal entities in the Emirates, as well as member countries of the Cooperation Council for the Arab States of the Gulf, or that export and import goods/services to/from the UAE;
- if the annual turnover of the onshore company exceeds 375,000 AED (100,000 USD).
You can also register as a VAT payer on a voluntary basis if the company's annual turnover exceeds 187,500 AED (50,000 USD).
Not required to register as VAT payers:
- non-resident enterprises registered in other jurisdictions and having a tax number there;
- offshore companies in the UAE, since they are prohibited from supplying goods and providing services to residents of the Emirates;
- companies in the UAE FEZ that do not export or import goods/services to/from the UAE. Such firms must documently confirmed that the goods are purchased and sold in other countries.
Firms registered as VAT payers are required to maintain accounting and tax records, submit tax returns. The reporting (tax) period is established by the tax department for each company separately (quarterly or monthly). The deadline for filing declarations and paying VAT is the 28th day of the month following the reporting period.
