Understanding UAE Taxes: A Guide to Corporate Tax and VAT for Businesses

What Is Corporate Tax in the UAE?

The United Arab Emirates (UAE) has announced that it will introduce a new corporate tax law, which will come into effect for fiscal years beginning after June 2023. Under this law, companies with taxable profits above AED 375,000 will be subject to a standard corporate tax rate of 9%. However, businesses with profits below this threshold will not be subject to any corporate tax and will be taxed at 0%.

A corporate tax is a type of taxation imposed on the profits earned by corporations or companies. This tax is calculated based on the net income of the business, which is determined by subtracting allowable deductions and expenses from the total revenue earned.

Governments rely on corporate taxes as a crucial source of revenue, which is utilized to support various public services, including infrastructure, education, and healthcare. Additionally, corporate taxes are used as a tool to regulate and incentivize specific business activities, such as promoting investment in particular regions or industries.

If your company requires assistance with the implementation of Corporate Tax in UAE, our team of experienced Management and Financial Consultants in Abu-Dhabi at Trust Accounts Management can guide you through the process. Our team is dedicated to providing support and advice to ensure that your company is fully compliant with the new tax regulations. 

How Will Corporate Tax Impact Businesses In UAE?

This move marks a significant shift in the UAE’s tax policy, which has traditionally relied on revenue from other sources, such as oil and gas exports, rather than corporate taxation. The new corporate tax law is intended to diversify the country’s revenue streams and provide additional funding for public services and infrastructure.

It is important to note that certain industries and sectors in the UAE, such as oil and gas exploration and production, may be exempt from the new corporate tax law, or subject to different tax rates or regulations. As with any tax policy change, businesses operating in the UAE will need to carefully review and understand the implications of the new law on their operations and finances.

What Are The Proposed Corporate Tax Rates in UAE? 

Businesses operating in the UAE will be subject to different corporate tax rates based on their level of taxable income and other factors. Companies with taxable income up to AED 375,000 will be taxed at a 0% rate, while those with income above this threshold will be subject to a 9% corporate tax rate.

However, multinational corporations that are subject to OECD Base Erosion and Profit-Sharing (BEPS) laws and fall under Pillar 2 of the BEPS 2.0 framework will be subject to a higher corporate tax rate of 15%, provided their combined worldwide revenues exceed AED 3.15 billion.

It is worth noting that certain industries and sectors may be exempt from corporate tax or subject to different tax rates and regulations. The new corporate tax law is aimed at diversifying the UAE’s revenue streams and providing additional funding for public services and infrastructure.

Businesses operating in the UAE should review their tax position and assess the impact of the new corporate tax law on their operations and finances. Seeking professional advice and guidance from tax experts can also be beneficial in navigating the changing tax landscape in the UAE.

What Is Value-Added Tax in the UAE?

Value-Added Tax (VAT) is a type of consumption tax that is levied on the sale of goods and services. In the UAE, VAT was introduced on January 1, 2018, at a standard rate of 5%.

VAT is imposed on the value added at each stage of the production and distribution process, meaning that it is ultimately borne by the end consumer. Businesses are required to register for VAT if their annual taxable supplies and imports exceed AED 375,000, or if they expect their annual taxable supplies and imports to exceed this threshold in the next 30 days.

VAT-registered businesses are required to charge VAT on their taxable supplies, collect the VAT from their customers, and then pay the collected VAT to the government. They can also reclaim the VAT paid on their business-related purchases, subject to certain conditions and limitations.

Certain goods and services in the UAE are exempt from VAT, such as basic food items, healthcare, education, and certain financial services. However, businesses that provide VAT-exempt supplies may not be entitled to reclaim the VAT paid on their business-related purchases.

What Are The Value-Added Tax Rates in UAE? 

In the UAE, the standard Value-Added Tax (VAT) rate is 5%. This rate applies to most goods and services that are subject to VAT, including imports, domestic sales, and leases.

However, certain goods and services in the UAE are either exempt from VAT or subject to a zero rate. These include basic food items, healthcare, education, certain financial services, and exports of goods and services outside the Gulf Cooperation Council (GCC) countries.

Businesses that provide VAT-exempt supplies may not be entitled to reclaim the VAT paid on their business-related purchases. However, businesses that supply goods and services at zero rates can still claim back the VAT paid on their business-related purchases, subject to certain conditions and limitations.

How Does Value-Added Tax Impact Businesses In UAE?

The introduction of Value-Added Tax (VAT) in the UAE has had a significant impact on businesses operating in the country. Here are some of the ways that VAT affects businesses in the UAE:

1. Increased costs: Businesses that are required to register for VAT and charge it on their taxable supplies may face additional costs associated with compliance, such as hiring tax experts or investing in new accounting systems.
2. Cash flow management: VAT-registered businesses must collect VAT from their customers and pay it to the government, which can impact their cash flow. Additionally, businesses must ensure that they have sufficient funds to pay the VAT on their business-related purchases, which they can reclaim later.
3. Compliance requirements: VAT-registered businesses must comply with a range of regulatory requirements, such as filing VAT returns, maintaining proper records, and submitting regular audits. Failure to comply with these requirements can result in fines and penalties.
4. Pricing and competition: VAT can impact pricing decisions, as businesses must factor in the 5% VAT when setting prices for their goods and services. This can affect competition within the market, as businesses that are not registered for VAT may be able to offer lower prices.
5. Increased transparency: VAT can help to increase transparency in business transactions, as businesses must maintain proper records and issue tax invoices. This can also help to reduce fraud and tax evasion.

Compliance with VAT regulations is critical for businesses operating in the UAE, and non-compliance can result in penalties and fines. It is recommended that businesses seek professional advice and guidance from tax experts to ensure that they meet their VAT obligations and avoid any potential penalties. 

If your business requires assistance regarding VAT returns services, our team of experienced Management and Financial Consultants in Abu Dhabi are here to assist you, 24/7. 

FAQs – Corporate Tax and Value-Added Tax in UAE

1. When will the UAE Corporate Tax Law be implemented?

The UAE Corporate Tax Law is set to be implemented for fiscal years after June 2023.

2. What is the standard corporate tax rate in the UAE?

For taxable income up to AED 375,000, a 0% corporate tax rate applies. For taxable income above AED 375,000, the corporate tax rate is set at 9%.

3. Are there any special tax rates for multinational corporations in the UAE?

Yes, multinational corporations that are subject to OECD Base Erosion and Profit-Sharing laws and fall within Pillar 2 of the BEPS 2.0 framework will be subject to a 15% corporate tax rate, provided their combined worldwide revenues exceed AED 3.15 billion.

4. What is Value-Added Tax (VAT) in the UAE?

VAT is a type of consumption tax that is levied on the sale of goods and services in the UAE.

5. What is the standard VAT rate in the UAE?

The standard VAT rate in the UAE is 5%.

6. What goods and services are exempt from VAT in the UAE?

Basic food items, healthcare, education, certain financial services, and exports of goods and services outside the Gulf Cooperation Council (GCC) countries are exempt from VAT in the UAE.

7. Who is required to register for VAT in the UAE?

Businesses whose annual taxable supplies and imports exceed AED 375,000, or who expect their annual taxable supplies and imports to exceed this threshold in the next 30 days, are required to register for VAT in the UAE.

8. What are the compliance requirements for VAT in the UAE?

VAT-registered businesses in the UAE must comply with a range of regulatory requirements, such as filing VAT returns, maintaining proper records, and submitting regular audits.

9. What are the penalties for non-compliance with VAT regulations in the UAE?

Non-compliance with VAT regulations in the UAE can result in penalties and fines, so it is important for businesses to ensure that they meet their obligations under the law.

Choose Trust Accounts Management for Tax Services

At Trust Accounts Management, we offer customized tax solutions tailored to the unique needs of your business. We provide a range of services, including tax planning, compliance, and representation in tax audits. 

We use the latest technology to manage your tax affairs efficiently and accurately, providing you with real-time updates on your tax status, as well as access to online tax portals for easy and convenient tax filing. 

We offer flexible tax services that can be scaled up or down based on your business needs, working with you on a project-by-project basis or providing ongoing support as needed. With our extensive knowledge and experience in various industries, including real estate, construction, hospitality, and more, we can provide industry-specific tax advice and strategies that can help your business save money and improve profitability. 

We have a strong reputation for providing high-quality tax services to businesses of all sizes and a proven track record of helping businesses navigate complex tax regulations and achieve their financial goals.

Our team of experienced tax professionals are knowledgeable about UAE tax laws and regulations. They can provide expert advice and guidance on all tax-related matters, including corporate tax, VAT, and tax planning.

Trust Accounts Management can help ensure that your business is fully compliant with all UAE tax regulations, including timely filing of tax returns, maintaining proper records, and submitting regular audits. This can help you avoid penalties and fines for non-compliance.

In Conclusion

By outsourcing your tax services to Trust Accounts Management, you can save time and effort that would otherwise be spent on managing your own tax affairs. This can be especially beneficial for businesses with limited resources or those that are looking to streamline their operations.

At Trust Accounts Management, we offer a range of financial services, including bookkeeping, financial reporting, tax preparation, and consulting. Our team of experts stays up-to-date with the latest accounting regulations and trends to provide our clients with the best possible advice and support.

We can assist you with all aspects of corporate tax, from planning and budgeting to filing tax returns and complying with tax regulations. Contact us today to learn more!