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Everything you need to know about the UAE’s new federal corporate tax

The UAE's new federal corporate tax

The UAE’s new federal corporate tax was announced on January 31. The UAE Ministry of Finance announced that the federal corporate tax will be introduced from June 1, 2023. After the announcement, many companies have been trying to understand what exactly this new law entails and how it might affect their business.

This article will discuss everything you need to know about UAE’s new federal corporate tax law; as well as how it will affect your business in the future.

 

What does the UAE Federal Corporate Tax mean?

In 2019, a new Federal Corporate Tax was announced by the Ministry of Finance in Abu Dhabi. The announcement did not come as a surprise as governments across the globe have been working towards addressing the issue of inequality in taxation for some time now. In 2018, OECD member countries agreed to work together on ensuring that multinationals pay their fair share of taxes by improving international co-operation and information sharing.

The UAE Federal Corporate Tax will be effective from 1st June 2023; and will be imposed on all corporations operating within the Emirates except for those companies involved in extraction of natural resources.

 

Do I have to register with FTA?

The first step is to register with the Federal Tax Authority (FTA). You can do this at any FTA office in Dubai. Once registered, you will be given a registration number that must be included on all your company documents. For example, if your company is a limited liability company (LLC) then it needs to include its LLC number. As well as its registration number on all of its contracts, invoices and other official documents.

 

How much does it cost?

The cost depends on your taxable income. If your taxable income is less than AED 100,000, then the tax rate is 0%.

If it’s between AED 100,000 and AED 250,000, then the rate is 10%. And if it’s over AED 250,000, then the rate becomes 15%.

 

How does it work?

The UAE federal corporate tax will apply across all business except extraction of natural resources. Companies with a turnover exceeding AED500 million ($136 million) must pay a 1% tax on their annual profit. Those making between AED50-500 million ($13.6-136 million) must pay 0.5%, and those earning less than AED50 million ($13.6 million) must pay 0.25%.

The 1% rate is capped at a maximum of AED12m ($3.7m). Companies that make a loss in one year can offset this against future profits for up to 10 years.

 

What are my obligations as a taxpayer?

Tax obligations vary depending on your type of business. You’ll be required to pay a certain amount of taxes on your gross receipts, which is the total value of goods or services that your company sells minus any discounts or allowances. If you make a profit, then this will be your net income. You’ll also have to file an annual return for your company. And submit it by 31st July; in order for them to assess how much of a corporation tax you owe.

 

Can I claim any rebates or exemptions?

Under this new law, there are many exemptions for which a company may be eligible. The most common exemption is for companies that have an annual turnover of less than AED 10 million. In addition, if a company has less than 50 employees and an annual turnover of less than AED 10 million. They will be exempt from paying federal corporate taxes. Other exemptions include:

  • Non-profit organisations – Charities with an annual turnover of less than AED 10 million
  • Companies in industries such as agriculture and fisheries
  • Marine transport companies

 

What if I don’t comply?

  • The UAE Ministry of Finance has warned that companies failing to comply with the Federal Corporate Tax; will be fined up to 100% of their total value
  • Companies who have not applied for a license by 1st June 2023 will be fined at least 10% of their total value. This amount will increase by 5% each year following

 

How long do I have to register with FTA?

The law will come into effect on 1st June 2023. All businesses with a turnover of over AED 5 million must register for the tax. This includes both existing and newly formed companies, as well as those that have not yet turned five years old on 1st June 2023. It is not necessary to register if your company has a turnover of under AED 5 million; and is engaged in extraction of natural resources only.

 

How RHJ Law can help

If you are a business owner in the UAE, it is crucial that your business is prepared for this new change. You can begin by ensuring that your financial records are up-to-date and accurate. Additionally, it would be wise to educate yourself on what this change means for your company so you’re able to make any necessary changes as quickly as possible. This will help ensure that any potential risks are mitigated before they happen.

If you need legal advice or assistance, be sure to contact the experts at RHJ Law. We’re able to guide you through what you need to know before moving abroad.

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