CORPORATE TAX & VAT

Corporate Tax, often referred to as Income Tax across GCC countries, is a form of direct tax collected by governments on the net income or profits of corporations and businesses.

On 31 January 2022, the UAE government announced plans to introduce a federal Corporate Tax on business profits. Effective 1 June 2023, a standard Corporate Tax rate of 9% was applied to all mainland business and commercial activities on taxable profits exceeding AED 375,000.

The UAE solidified this new tax regime with the release of Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses on 9 December 2022, which serves as the foundation for the implementation of the Corporate Tax Law.

On the other hand, Value-Added Tax (VAT) was introduced in the UAE in 2018. Consumers pay VAT, and businesses are responsible for collecting it and remitting it to the government. Failure to comply with this requirement can result in serious penalties. Currently, a 5% VAT is charged at the point of sale in the UAE.

FAQs on Value Added Tax (VAT)

How can I register for VAT?

The applicant who wants to register for VAT must file an application with the FTA online and complete all the required procedures.

How much is VAT?

5% VAT is applicable along with the cost of taxable goods and services in the UAE.

Who is exempted from VAT?

If you deal in financial services, residential buildings, supply of bare land, and local traveling services then you are not liable to pay VAT.

When should I register for VAT?

Voluntary Registration: If the taxable person turnover or expenses for the last 12 months is more than AED 187,500 then you have the opportunity to register for VAT.

Necessary Registration: If the taxable person turnover or expenses for the last 12 months exceeds AED 375,000 then your business must register for VAT.

How long does a taxable person have to keep VAT invoices?

VAT invoices produced and accepted must be kept for a minimum of 5 years by any taxable person.

What is input and output tax?

The VAT that a company pays to suppliers for all business-related goods, machinery, and costs is referred to as input tax.

Output tax is the VAT that a VAT-registered firm in the UAE charges on the goods and services it provides to consumers or clients. For each taxable sale, the firm charges and collects output tax.

FAQs on Corporate Tax

What companies are subject to corporate tax?

In the UAE, most businesses conducting commercial activities within the country are subject to corporate tax. This includes:

Mainland Companies: Businesses registered in any of the UAE’s emirates outside of a free zone.
Branches of Foreign Companies: If a foreign company establishes a branch in the UAE mainland, it will be subject to corporate tax on its UAE-sourced profits.

What companies are exempt from corporate tax?

Certain entities in the UAE, including government bodies and specific investment funds, may be exempt from UAE Corporate Tax. However, the majority of business and commercial activities are subject to this tax.

What documents will I need for my corporate tax registration?

The specific documents required may vary but generally include:

Trade license
Memorandum of Association (MOA)
Financial statements
Passport copies of owners/directors/Ultimate Beneficial Owners (UBO)

While the Federal Tax Authority (FTA) website and e-Services Portal are available in both English and Arabic, the registration process may require documents to be submitted in Arabic. For expert consultation, contact Fasttrack Consultancy via email at info@fasttrackconsultancy.ae email or call +97165225808 today.

When is the deadline for a company to have been registered for corporate tax?

Companies are required to register for corporate tax within the timeframe specified by the Federal Tax Authority (FTA). This usually occurs within a month of beginning business activities.

What is the deadline for submitting my corporate tax return?

The tax return filing period would depend on the financial year period of your compant. Generally, returns are due within the timeframe specified by the Federal Tax Authority (FTA), within a few months after the end of your financial year.

What expenses are deductible under UAE’s corporate tax regime?

The UAE adheres to the arm’s length principle for determining deductible expenses. This principle requires that expenses be ordinary, necessary, wholly, and exclusively incurred for business purposes and, when dealing with related parties, be at arm’s length (fair market value).

Although specific guidelines are not yet available, commonly deductible expenses may include:

Cost of goods sold
Rent
Salaries and wages
Utilities
Marketing and advertising expenses (subject to certain limits)
Interest on business loans (with restrictions)

For expert consultation, contact Fasttrack Consultancy via email at info@fasttrackconsultancy.ae email or call +97165225808 today.