Uncovering the Top Federal Tax Rates in the UAE
Introduction
Federal Tax Authority launched 9 percent corporate tax law registration exclusively for corporations like public joint stock companies and private companies on 15th May 2023 under Federal Decree-Law 47 of 2022, which UAE never experienced before. Federal Corporate Tax in the UAE will take effect from 1st June 2023. The purpose of the corporate tax law is to help the United Arab Emirates (UAE) to accomplish the set targets for speedy development and drastic transformation while adhering to international standards with an extensive network of double treaties that would seal the top position of the United Arab Emirates as a jurisdiction for business and investment. The UAE corporation tax substantially contributed to the country becoming an international business hub and financial center by creating the best policies that incorporate internationally-accepted policies globally.
What is a Corporate Tax (CT)?
Corporate Tax (CT) is a tax deducted directly from the net profit generated from the sale of goods and services of the business entities and the individuals carrying on their business activities in the UAE.
Who is subject to Corporate Tax (CT)?
In a broad sense, the joint stock companies and the private companies are liable for corporate tax. The entities subject to corporate or direct taxation from the net income are:
- UAE Companies and other juridical persons incorporated, well-managed, and controlled by the UAE.
- Natural or individuals running and performing business activities in the UAE according to cabinet decisions.
- Non-resident juridical persons or foreign legal entities with permanent UAE establishment u/s 8.
- Juridical persons who formed their companies in a UAE-free zone that fall under the category of taxable persons within the scope of corporate tax. They must adhere to the regulations of the corporate tax law.
What is Corporate Tax Rate?
The corporate tax rate specifies the percentage of the taxable income levied on the corporates and the individuals running the businesses in the UAE as per the scale mentioned below.
| Residential taxable persons | % of CT |
|---|---|
| Income < AED 375,000 | 0% |
| Income > AED 375,000 | 9% |
| Qualifying Freezone persons | % of CT |
|---|---|
| Qualifying income | 0% |
| Taxable income that does not meet the criteria of qualifying income | 9% |
What is the withholding tax rate?
The withholding tax rate is the tax deducted at the source on the specific amount of taxable income that exceeds the minimum earnings of AED 375,000. A 0% withholding tax will imply the non-residents’ UAE-sourced payment owing to a 0% rate in practice.
Conclusion
The corporate tax rate benefits the country by promoting rapid development, which brings a drastic improvement. Only those businesses and individuals drawing a net profit of AED 375,000 would be liable for paying the tax. The employees in the UAE with a single income source are not subject to corporate tax.
