Taxability of Corporate Taxes

Dubai, the dazzling city of the United Arab Emirates (UAE), has long been known for its tax-friendly reputation. However, with the introduction of corporate tax in Dubai, the business landscape has evolved. This change marks a significant shift for companies operating in or planning to establish a presence in the Emirate. Let’s break down the situation for businesses considering setting up shop in Dubai, focusing on the new corporate tax framework.

UAE Corporate Tax applies to tax periods starting on or after 1 June 2023. Taxpayers must determine their first Tax Period in line with FTA public clarifications including rules for non-standard first tax periods.

Here's the gist

• There's a new federal corporate tax across all the emirates, including Dubai. It applies to businesses starting from June 2023.
• But wait, there's good news! Most small and medium businesses get a tax break. Profits up to 375,000 UAE dirhams (AED) are taxed at 0%, which is basically no tax at all. That's a good chunk of change! (One AED is roughly equal to $0.27 USD, so do the conversion if it helps).
• For businesses making more than 375,000 AED, the standard corporate tax rate is 9%. That's a pretty competitive rate compared to many other countries.

Let's break it down further:

Who pays? 

• Most businesses operating in the UAE will be subject to the corporate tax. There are some exceptions, like government entities and businesses in specific industries, but it's best to consult with a tax advisor for the specifics.
• Registration timeframes differ by taxpayer type under FTA Decision effective 1 March 2024 — resident juridical persons, new incorporations, non-residents with PE, and natural persons have specified deadlines. Check FTA Decision for exact applicable timeframe. The corporate tax applies to the net profits of your business, which is basically your income after subtracting your expenses.
• Natural persons with business turnover exceeding AED 1,000,000 in Gregorian year must register for Corporate Tax; affected individuals were asked to register by 31 March 2025 where applicable. The corporate tax applies to the net profits of your business, which is basically your income after subtracting your expenses.
• The corporate tax applies to the net profits of your business, which is basically your income after subtracting your expenses.

What's taxed?

• The corporate tax applies to the net profits of your business, which is basically your income after subtracting your expenses.
• Example — companies with financial year 1 Jan – 31 Dec 2024 must file by 30 Sep 2025 (nine months after year-end).

How much tax?

• Remember the two brackets? Up to 375,000 AED - 0% tax. Anything above that - 9% tax. There might be additional rules for very large multinational companies, but that's a more complex situation.
• Taxable profits up to AED 375,000 qualify for small-profits relief (0%). Businesses should review FTA Small Business Relief conditions and election rules before treating income as exempt.
• Domestic Minimum Top-Up Tax (DMTT): Effective for financial years starting on/after 1 Jan 2025, UAE’s DMTT applies to groups with global revenue ≥ €750 million. Multinational groups should consult MOF/FTA DMTT guidance.

What about Free Zones?

Free zones in Dubai, like the Dubai International Financial Centre (DIFC), may have some different tax rules. These zones often offer additional benefits for businesses, so it's worth exploring them if they fit your needs.

Dubai's new corporate tax system presents both challenges and opportunities. While the tax rates remain competitive, navigating the process requires careful planning. Here are some steps to consider:

• Seek Professional Help: Consult a qualified tax advisor in the UAE to understand your specific tax obligations and explore potential tax-saving strategies.
• Stay Informed: Keep yourself updated on any changes or clarifications to the tax regulations.
• Plan for the Future: Consider how the new tax system might affect your business's long-term financial planning and growth strategy.

Free zones in Dubai, like the Dubai International Financial Centre (DIFC), may have some different tax rules. These zones often offer additional benefits for businesses, so it's worth exploring them if they fit your needs.

Qualifying Free Zone Persons (QFZPs) may obtain 0% rate on qualifying income if they meet FTA conditions (permitted activities, substance, de-minimis tests). Non-qualifying income is generally taxed at standard rates.

By understanding the corporate tax landscape and seeking professional guidance, Dubai can remain an attractive location for your business to thrive.

Conclusion

Dubai remains an attractive location for businesses, with a competitive corporate tax regime and a focus on growth. While there's a new tax, the exemptions for smaller businesses and the overall low rates make it a good place to consider.