Preparation for UAE Corporate Tax

The implementation of Corporate Tax (CT) in the United Arab Emirates (UAE) on January 1st, 2024, marks a significant shift in the country's financial landscape. While the UAE has traditionally been a tax-friendly jurisdiction, businesses operating there now need to adapt to this new regulatory environment. This guide serves as a complete resource to assist in preparation for UAE Corporate Tax in 2024.

Taxable profits up to AED 375,000 qualify for small-profits relief (0%). Businesses should check Small Business Relief election conditions and revenue tests in the FTA guidance.

Effective preparation ensures compliance with financial regulations and standards, such as IFRS. By prioritizing preparation, businesses avoid costly penalties, reputational damage, and losses. Moreover, a well-prepared compliance framework allows companies to find and mitigate potential risks so that the accuracy and transparency of financial reporting are ensured. As Reyson Badger says, "Proactive preparation is key to navigating the complexities of financial compliance and avoiding severe penalties.

As the UAE develops its standing as the ultimate business centre, companies operating within the country have to follow tax rules. Among the most vital direct components in relation to tax compliance, ‎the deadline for filing the corporate tax return should be understood. This article discusses the need to be compliant with respect to deadlines, their implication, and necessary information that corporations should know and follow with head offices in the UAE.

UAE Corporate Tax is effective for tax periods starting on or after 1 June 2023. Many businesses therefore began preparing for first tax periods and filing obligations in 2024–2025 depending on their financial year-end.To simplify this process and ensure full compliance, many businesses rely on experienced corporate tax filing companies in Dubai. Reyson Badger helps businesses manage tax filing requirements, prepare accurate returns, and meet deadlines efficiently.

Understanding the Fundamentals

• Tax Rates : The UAE CT regime operates with a tiered system. Businesses with a commercial license and a taxable income below AED 375,000 (approx. USD 102,000) are exempt from CT. Those exceeding this threshold are subject to a 9% tax rate on their taxable income. A domestic top-up / undertaxed profits rule applies consistent with OECD Pillar Two; entities that are part of groups with global revenue ≥ €750 million may be subject to additional top-up taxes (see MOF/FTA guidance on Domestic Minimum Top-Up Tax (DMTT)).
• Taxable Income : Determining your taxable income is crucial for calculating your CT liability. It's derived by subtracting allowable expenses and exemptions from your company's total UAE-generated revenue for the fiscal year. Understanding what constitutes allowable deductions and exemptions will be essential for accurate tax calculations.
• Registration Requirements : Businesses meeting the registration criteria must obtain a Tax Registration Number (TRN) from the Federal Tax Authority (FTA) within the stipulated time frame. The specific time frame depends on your company's incorporation date and legal structure. Refer to FTA Decision No. 3 of 2024 for a detailed breakdown of registration deadlines.

What is Corporate Tax ?

Corporate tax is a direct tax imposed by the government on the income or profits earned by corporations and similar legal entities. It is levied on the net profits of a company, which is calculated as the excess of receipts over allowable costs. Corporate tax serves as a significant source of revenue for governments, used to fund public services, infrastructure, and other governmental functions.

Corporate Tax Rates in UAE

The UAE Corporate Tax regime has a tiered rate system that applies based on the Taxable Income:

• 0% Rate : Applies to the amount of taxable income that is less than or equal to AED 375,000.
• 9% Rate : Applicable on the portion of Taxable Income exceeding AED 375,000​.

For instance, if a company has a net profit of AED 6 million, the calculation of Corporate Tax is as follows:

1. The first AED 375,000 is taxed at 0%:
   AED 375,000 × 0% = AED 0
2. The remaining AED 5,625,000 is taxed at 9%:
   AED 5,625,000 × 9% = AED 506,250

Thus, the total Corporate Tax liability would be AED 506,250​.

Taxable Income Calculation

Taxable Income is derived from the net profit shown in a company’s financial statements, adjusted according to the provisions of the Corporate Thttps://www.reyson.ae/ax Law. This includes:

• Accounting Income : The net profit or loss according to International Financial Reporting Standards (IFRS) or IFRS for SMEs (for businesses with revenue not exceeding AED 50 million).
• Adjustments: Certain items such as exempt income, non-deductible expenses, and allowable deductions are considered to finalize Taxable Income​

Who is Subject to Corporate Tax?

Corporate Tax in the UAE applies to specific individuals and entities, referred to as Taxable Persons. These are divided into Resident Persons and Non-Resident Persons based on their business activities.

Resident Persons

Resident Persons subject to Corporate Tax include:

• Juridical Persons (Companies): Entities incorporated in the UAE or managed and controlled in the UAE​.
• Natural Persons (Individuals): Individuals conducting business activities in the UAE, provided their annual turnover exceeds AED 1,000,000​​

.Non-Resident Persons

Non-Resident Persons are subject to Corporate Tax if they:

• Have a Permanent Establishment in the UAE​.
• Derive State Sourced Income in the UAE​.
• Earn income from Immovable Property located in the UAE​.

Exempt Persons

Certain entities are exempt from Corporate Tax, including:

• Government Entities.
• Government-Controlled Entities (if listed in a Cabinet Decision).
• Qualifying Public Benefit Entities.
• Businesses involved in Extractive and Non-Extractive Natural Resource Activities (subject to conditions)​​.

This simplified breakdown highlights the key categories of those who are subject to Corporate Tax, making it easier to identify who needs to comply with these regulations.

What is Subject to Corporate Tax?

Corporate Tax is applied to a company’s Taxable Income, which consists of:

• For Resident Persons: Income earned from both UAE and foreign sources.
• For Non-Resident Persons: Income earned through a Permanent Establishment or a nexus in the UAE.
• For Individuals: Business income if they operate a licensed business and earn over AED 1,000,000 per year​.

Exempt Income includes

• Domestic dividends.
• Income from foreign Permanent Establishments.
• Certain types of investment income​​.

To determine the final Taxable Income, allowable deductions and tax reliefs are applied, and adjustments based on accounting standards (like IFRS) are considered​

Key Areas for Preparation

Now that you grasp the basics, let's delve into the practical steps involved in the preparation for UAE Corporate Tax

• Evaluate Your Tax Position: Conduct a thorough assessment of your company's legal structure, financial standing, and operational footprint. This analysis will help you determine your CT implications and identify areas requiring potential adjustments.
• Review Financial Records: Ensure your accounting records are accurate and up-to-date, particularly for the 2023 fiscal year. Maintaining meticulous records will be critical for calculating taxable income under the new regime. Companies exceeding the AED 50 million (approx. USD 13.6 million) annual revenue threshold or those operating within Free Zones with specific requirements will need audited financial statements.
• Identify Tax Implications: Analyze your business activities to understand how they align with CT regulations. This includes assessing the tax treatment of specific transactions, deductions, and exemptions. Consider seeking professional guidance from tax advisors or consultants specializing in UAE CT.
• Update Internal Systems and Processes: Adapt your internal systems and processes to accommodate CT compliance requirements. This might involve implementing new software for tax calculations, record-keeping, and filing returns. Streamlining these processes will ensure efficient tax management.
• Raise Awareness Among Employees: Educate your employees on the basics of UAE CT and their potential role in tax compliance. This can help foster a culture of awareness and responsibility within your organization.

How to Prepare for UAE Corporate Tax?

Preparing for corporate tax in the UAE involves several key steps to ensure compliance with the new tax regime, which became effective for financial years starting on or after June 1, 2023. Here’s a comprehensive guide on how to prepare:

Understand the UAE Corporate Tax System

• Familiarize yourself with the UAE's corporate tax law, which imposes a standard tax rate of 9% on taxable income exceeding AED 375,000. Corporation tax is not applied to income below this amount. Understanding these fundamentals is crucial for accurate reporting and compliance.
• From 2025, the UAE introduced a Domestic Minimum Top-Up Tax (DMTT) to implement Pillar Two rules for groups with global revenue ≥ €750m. Multinational groups should review MOF guidance to determine DMTT implications.

Assess Tax Applicability for Your Business

• Determine whether your business is subject to corporate tax. This includes evaluating your company's structure (e.g., whether it is a domestic or foreign entity) and understanding the specific activities that may incur tax liabilities.
• Qualifying Free Zone Persons (QFZPs) may be eligible for a 0% rate on qualifying income if they meet FTA conditions (substance, activities, documentation). Non-qualifying income is taxable at standard rates.

Register for Corporate Tax

• All taxable entities must register for corporate tax with the UAE's Federal Tax Authority (FTA). The registration deadlines vary based on the issuance date of the trade license:
• Companies must submit their registration application by specific deadlines based on their license issuance month.
• Registration timeframes differ by taxpayer category under the FTA Decision effective 1 March 2024. Resident juridical persons, new incorporations, natural persons and non-residents have specific deadlines — consult the FTA Decision for the exact timeframe that applies to your entity.
• Ensure you register with the FTA within the applicable timeframe (avoid penalties), and gather all required documentation in advance to streamline the registration process.
• Natural persons whose business turnover exceeded AED 1,000,000 in the Gregorian year should register for corporate tax — the FTA reminded affected natural persons to register by 31 March 2025 where applicable.
• Penalties may be imposed for late registration/filing but relief may be available. See FTA guidance on the 2025 waiver and the formal objection/appeal process for contested penalties.

Maintain Accurate Financial Records

Ensure that your financial records are meticulously maintained. This includes:

• Keeping track of all income and expenses.
• Documenting receipts and invoices that will support deductions.
• Retaining records for at least seven years following the end of the tax period.

Calculate Taxable Income

Prepare to calculate your taxable income accurately by:

• Analysing financial statements to determine net profit.
• Identifying allowable deductions and ensuring compliance with tax regulations regarding expenses.

Implement Transfer Pricing Policies

• If your business engages in transactions with related parties, establish transfer pricing policies that comply with UAE regulations. This includes documenting how prices are set for goods and services exchanged between affiliated entities.

File Tax Returns

• Prepare to file your corporate tax return within nine months after the end of your financial year. Ensure that all required documentation, including financial statements and supporting schedules, are accurately completed and submitted through the FTA's EmaraTax portal.
• Example: A company with FY 1 Jan–31 Dec 2024 must file its Corporate Tax return by 30 September 2025 (nine months after year-end).

Seek Professional Guidance

• Consider engaging tax professionals or consultants who specialize in UAE corporate tax to navigate complexities, ensure compliance, and optimize your tax position. Their expertise can be invaluable in managing filings and addressing any issues that arise.
• Address registration & filing risks / Penalties & compliance checks
• Failure to register or file on time can result in administrative penalties, additional fines or interest.
• FTA Waiver (2025): The AED 10,000 late-registration penalty may be waived or refunded where the taxpayer files the first Corporate Tax Return (or annual declaration for exempt persons) within 7 months from the end of the first Tax Period — check FTA waiver guidance for eligibility details.  

Staying Informed and Seeking Support

The UAE CT regime is still evolving, with further guidance and clarifications expected from the FTA. Here are some resources to stay updated:

• The Federal Tax Authority (FTA) website: https://tax.gov.ae/en/
• Reputable tax consultancy firms specializing in UAE CT

Remember, this guide provides a general overview, and it's advisable to consult with a qualified tax professional for personalized guidance tailored to your specific business situation. With proactive preparation and expert support, you can navigate the new UAE CT landscape smoothly and ensure your company remains compliant.