The UAE’s business outlook transformed in June 2023 with the introduction of corporate tax. This move signals a shift towards a more sustainable economic model, prioritizing fiscal responsibility without sacrificing the country’s growth ambitions. Businesses operating in the UAE must now understand this new tax environment strategically to ensure continued success. This blog explores the impact of corporate tax on business growth and equips you with strategies to thrive in the era of corporate tax.
Understanding the Corporate Tax Framework:
The UAE’s corporate tax regime is designed to be competitive and foster business activity. Here are some key aspects to understand:
-
Competitive Tax Rate:
The corporate tax rate is set at a flat 9% on taxable profits exceeding the threshold. This rate remains attractive compared to many other jurisdictions. The rates are provided in the Cabinet Decision No.116/2022 dated 30.12.2022.
-
Taxable Profits:
Only profits exceeding 375,000 AED are subject to tax. Meaning, the taxable income of a taxable person shall be subject to corporate tax at a standard rate of 9 % and the first AED 375,000 of the taxable income shall be subject to a zero rate.
For instance, if the business earns taxable income of AED 1 million, the corporate tax payable would be computed as follows:
| Particulars | Computation | AED |
| Upto AED 375,000 | AED 375000*0% | Nil |
| Above AED 375,000 | [1,000,000 – 375,000]
= AED 625,000 * 9% |
56,250 |
| CT Payable | 56,250 | |
This provides a buffer for growing businesses, allowing them to retain capital for reinvestment.
-
Small Business Relief:
Businesses with annual revenues below 3 million AED are exempt from corporate tax till 31st December 2026. This exemption protects small and medium-sized enterprises (SMEs) – the backbone of the UAE’s economy. The Small Business Relief is available only to a Resident Taxable Person. Persons claiming this relief shall be treated as having no taxable income in respect of each relevant tax period.
-
Qualified Free Zone:
On fulfilling all the prescribed conditions as laid down in the law, establishments incorporated in Free Zones would be considered as Qualified Free Zone and are benefited with 0% corporate tax on its qualifying income.
Strategies for success in the new tax environment:
-
Effective Tax Planning:
To reduce their tax liabilities, businesses should consider implementing tax planning tactics like identifying and maximizing tax-deductible expenses, and capitalizing on available benefits within qualified free zones, understanding the nature of taxability of income earned – whether subject to tax or exempt, abide by the deadlines provided under the law in respect of registration and return filing in order to avoid the penalties & audit.
-
Maintain strong financial records
Detailed and accurate financial records are the backbone of both error-free tax filing and verifiable compliance. Implementing robust accounting software streamlines tax management processes, saving time and resources. Maintenance of books of accounts is also a pre-requisite under the decree law. Such books of accounts are to be maintained and preserved for a prescribed number of years as per the statute.
-
Evaluate the tax benefits under the law
There are several tax benefits available under the statute – Exemption, Small Business Relief, introduction of concept of Qualified Free zone. Businesses can explore these benefits and establish its operations by aligning their strategy to claim the maximum benefits provided to them.
For instance, Free zone entities on qualifying the prescribed conditions are eligible to be called as Qualified Free zone entities and can avail the benefit of 0% corporate tax on its qualifying income.
Its also important for every establishment claiming the tax benefits to understand the specific requirements and limitations associated with it.
-
Embrace the technology
Leveraging cloud-based technology for tax filing, record management, and financial analysis can automate tasks, improve accuracy, and significantly reduce the time spent on compliance processes.
-
Value Creation
There is focus towards activities that generate genuine economic value for the UAE. Businesses that embrace activities driving innovation, providing employment opportunities, and promoting knowledge transfer will be well-positioned to grow in this new era.
Conclusion:
The introduction of corporate tax in the UAE marks an evolution, not a revolution, for the country’s business environment. It is indeed a manageable change for both the existing and new businesses. Understanding the law is a must. Consulting the tax expert would pave a way for the success of your business. We at BCL Globiz, can help you understand the tax framework, identify potential tax saving opportunities, and ensure compliance with regulations. Feel free to reach out to us for any assistance related to Corporate tax matters at nikhil@bclglobiz.com.
