The United Arab Emirates (UAE) has been a flourishing hub for businesses, attracting both local and international companies. One of the pivotal aspects that contribute to its attractiveness is its tax-friendly environment. The UAE has long been known for its zero or minimal tax policies, particularly in relation to corporate taxation. However, recent developments have brought about changes that are causing businesses to rethink their strategies, including their contractual agreements and corporate tax planning.
The Corporate Tax Landscape in the UAE
Historically, the UAE has been considered a tax haven, offering a business-friendly environment with no federal corporate tax.
However, in line with the global push for greater tax transparency and compliance with international standards, the UAE introduced Corporate Tax in 2023. These changes led to a significant shift in the country’s tax policies and had repercussions on contractual agreements as well as corporate tax planning.
Impact on Local Companies
The UAE corporate tax is effective from 1 June 2023 and applies from the beginning of the first financial year starting on or after that date. Businesses will be liable to pay a tax of 9% on taxable profits of more than AED 375,000. There will be zero taxation on taxable incomes less than or equal to AED 375,000. There are also some reliefs and exemptions in the UAE corporate tax regime, such as for small businesses whose total revenue in the previous and current fiscal year does not exceed AED 3 million.
Impact on Free Zones
An individual who satisfies all the criteria to be recognized as a Qualifying Free Zone Person will be subject to a 0% corporate tax rate in the UAE on their qualifying income. However, for any income that doesn’t qualify under this designation they will be taxed at a 9% corporate tax rate. In essence, this entails that while they enjoy a 0% corporate tax rate on their qualifying income, a 9% corporate tax rate will be applied to any income exceeding the defined criteria for qualification, thereby ensuring their tax liability is determined by the nature of their income.
Double Taxation Treaties
Double taxation occurs when identical taxes are levied by two countries on the same taxpayer and the same taxable source. This can have detrimental effects on the flow of goods, services, capital, technology transfer, and trade across international borders.
The UAE has established a network of double taxation treaties (DTTs) with numerous countries to prevent the double taxation of income and encourage international business and investment. These DTTs typically outline the allocation of taxing rights and provide mechanisms for dispute resolution. The UAE has signed DTTs with countries like France, India, the United Kingdom, and the United States, among many others. These treaties play a crucial role in facilitating cross-border economic activities and ensuring fair and equitable taxation. For the most current information, it’s advisable to consult local tax authorities or professionals familiar with the latest developments in the UAE’s DTT network.
Audit and Compliance
The commercial companies law states that the audit of accounts is mandatory for mainland companies and some parts of the free zones in the UAE. Companies must appoint licensed auditors to audit the books of accounts and financial statements. Companies that do not present the audit reports get penalties from the authorities. Auditac International provides a wide range of auditing services in accordance with the client’s business needs. We are committed to providing the best auditing and corporate tax services in Abu Dhabi, UAE in compliance with the latest updates.
Feel free to consult with our expert teams about auditing services. As the UAE continues to evolve its tax landscape, businesses need a reliable guide to navigate the changing terrain. Auditac International emerges as a beacon of expertise, illuminating the path to successful contract negotiations in this dynamic environment. Our adept handling of Corporate Tax intricacies ensures that businesses thrive, complying with tax regulations while flourishing in this land of opportunity.
Read More: Corporate Tax In UAE
For businesses looking for corporate tax in UAE‘s vibrant business landscape, partnering with Auditac International is undoubtedly a step in the right direction. Stay informed, stay compliant, and watch your business prosper amidst the shifting sands of corporate taxation in the UAE.
The content posted is for informational purposes only and is a personal view/interpretation of the publisher based on the available Law, guidelines, and information. This should not be considered a definitive answer/advice that one should adopt. Each reader must take due professional care and should seek clarification/advice from the relevant government authority to determine their implications. The content posted is not intended to indemnify the reader if they choose to apply the view/interpretation posted.