Corporate tax is a crucial element of the economic framework in any country, and the UAE is no exception. With the introduction of corporate tax in the UAE, businesses must understand the implications, registration processes, and compliance requirements to navigate this new tax landscape effectively. Esteem Advisory LLC provides this detailed guide to help you understand corporate tax in the UAE and ensure your business remains compliant.
What is Corporate Tax in the UAE?
Corporate tax in the UAE refers to a form of direct tax imposed on the profits of businesses operating within the country. The introduction of corporate tax is part of the UAE’s efforts to diversify its economy and align with international tax standards. The Federal Tax Authority (FTA) is responsible for overseeing and enforcing corporate tax laws in the UAE.
Is Corporate Tax a Direct Tax?
Yes, corporate tax is a direct tax. Unlike indirect taxes, such as Value Added Tax (VAT), which are levied on goods and services, corporate tax is levied directly on the profits earned by businesses. This means that the tax is paid directly by the company to the government based on its net income after deducting allowable expenses.
Is Corporate Tax on Revenue or Profit?
Corporate tax in the UAE is levied on profit, not revenue. Profit is calculated as the total revenue of a business minus allowable expenses, which include operating costs, salaries, and other business-related expenditures. Therefore, businesses are required to pay corporate tax only on the profit they generate, not on their total income.
How to Register for Corporate Tax in UAE
Registering for corporate tax in the UAE is a mandatory process for all businesses that meet the taxable criteria. The registration process is handled through the Emaratax portal, which is managed by the Federal Tax Authority (FTA). Below is a step-by-step guide to help you navigate the registration process.
Step 1: Create an Account on Emaratax Portal
To begin the registration process, you must first create an account on the Emaratax portal. This can be done by registering with your email ID and phone number. If you already have an existing account, you can log in using your credentials.
Step 2: Create or Select the Relevant Taxable Person
Once you have logged into the Emaratax portal, you need to create a taxable person account or select the relevant taxable person from the list if it has already been created. A taxable person refers to any individual or legal entity that is required to pay corporate tax in the UAE.
Step 3: Register for Corporate Tax
After selecting the relevant taxable person, you will see an option to register for corporate tax. You need to select this option and complete the registration process by providing the necessary information and documents.
Required Documents and Forms
Depending on whether the applicant is a natural person or a legal person, different documents are required to complete the registration process.
For Natural Persons:
- Trade License (if applicable)
- Emirates ID or Passport of the Applicant
For Legal Persons:
- Trade License
- Emirates ID or Passport of the Authorized Signatory
- Proof of Authorization for the Authorized Signatory
These documents must be submitted in PDF or Word format, with each file size not exceeding 5MB.
Processing Time and Additional Information
Once the completed application is submitted, the FTA typically takes 20 business days to process it. However, if additional information is required, the processing time may be extended. Applicants are given 60 calendar days to provide the required additional information; otherwise, the application will be rejected. The FTA may take an additional 20 business days to respond to updated applications.
Important Note on UAE Branches of Domestic Companies
UAE branches of domestic companies are considered an extension of their parent or head office and are not separate legal entities. Therefore, these branches are not required to separately register or file for UAE corporate tax.
How to Calculate Corporate Tax in UAE
Calculating corporate tax in the UAE involves determining the taxable profit of your business and applying the relevant tax rate. Here’s a step-by-step guide to help you calculate corporate tax.
Step 1: Determine Total Revenue
The first step in calculating corporate tax is to determine the total revenue of your business. This includes all income earned from business activities, sales, and services provided during the tax period.
Step 2: Deduct Allowable Expenses
Once you have determined the total revenue, the next step is to deduct allowable expenses. These expenses include operational costs, employee salaries, rent, utilities, and other business-related expenditures. The UAE tax law specifies which expenses are deductible, so it’s important to ensure that you are only deducting those that qualify.
Step 3: Calculate Taxable Profit
After deducting the allowable expenses from the total revenue, the remaining amount is your taxable profit. This is the amount on which corporate tax will be levied.
Step 4: Apply the Corporate Tax Rate
The UAE has introduced a corporate tax rate of 9% on taxable profits exceeding AED 375,000. Profits below this threshold are exempt from corporate tax. To calculate your corporate tax liability, simply multiply your taxable profit exceeding the threshold by the applicable tax rate.
Example Calculation
Let’s assume your business has a total revenue of AED 1,000,000 and allowable expenses of AED 600,000. The taxable profit would be AED 400,000. Since this amount exceeds the threshold, the corporate tax would be 9% of AED 25,000 which equals AED 2,250.
Exemptions and Reliefs
Certain entities and types of income may be exempt from corporate tax in the UAE. It’s important to be aware of these exemptions to ensure accurate tax planning and compliance.
Exempt Persons
Exempt persons include government entities, government-controlled entities, and certain organizations such as charities, pension funds, and investment funds that meet the qualifying criteria set by the FTA.
Reliefs and Deductions
The UAE corporate tax law provides certain reliefs and deductions for specific types of income and expenses. For example, income derived from a foreign permanent establishment of a UAE business may be exempt from corporate tax if certain conditions are met.
Compliance and Reporting Obligations
Once registered, businesses must comply with various reporting obligations under the UAE corporate tax law. This includes maintaining accurate financial records, submitting corporate tax returns, and making timely payments.
Annual Corporate Tax Return
All taxable persons are required to file an annual corporate tax return with the FTA. The tax return must be filed within nine months from the end of the relevant tax period.
Payment of Corporate Tax
The corporate tax liability must be paid within the same nine-month period. Failure to pay the tax on time may result in penalties and interest charges.
Penalties for Non-Compliance
If a business doesn’t keep proper records as required by corporate tax law, it will be fined AED 10,000. If the same mistake happens again within 24 months, the fine increases to AED 20,000. This stresses the importance of following tax rules. If a business fails to submit required documents in Arabic, it could be fined AED 5,000. Late deregistration could lead to a monthly fine of AED 1,000, up to AED 10,000. Any changes to tax records must be reported, or a fine of AED 1,000 will apply, increasing to AED 5,000 for repeated offenses.
Legal representatives must notify the Authority of their appointment and file tax returns on time, or face fines starting at AED 500 per month, increasing to AED 1,000 per month after the first year. Unpaid taxes will result in a monthly penalty of 14% per year. Missing the deadline for corporate tax registration will result in a fine of AED 10,000. These penalties encourage businesses to follow tax rules and meet deadlines. These penalties may be imposed for failing to register, failing to file a tax return, or providing incorrect information to the FTA.
How Esteem Advisory LLC Can Assist You
Navigating the complexities of corporate tax in the UAE can be challenging, but with the right guidance, your business can stay compliant and minimize its tax liabilities. Esteem Advisory LLC offers expert tax advisory services to help you understand and meet your corporate tax obligations. Our services include:
Corporate Tax Registration: Assistance with registering for corporate tax on the Emaratax portal.
Tax Planning: Strategic tax planning to optimize your tax position and take advantage of available reliefs and exemptions.
Compliance Support: Ensuring your business meets all reporting obligations and deadlines to avoid penalties.
Tax Dispute Resolution: Representing your business in case of any disputes with the FTA.
Corporate tax is a significant development in the UAE’s tax landscape, and businesses must understand their obligations and responsibilities under the new law. By following the steps outlined in this guide and seeking professional advice from Esteem Advisory LLC, you can ensure that your business remains compliant and minimizes its tax burden. Remember, staying informed and proactive is key to successfully navigating corporate tax in the UAE. If you have any questions or need assistance with corporate tax registration, calculation, or compliance, don’t hesitate to contact Esteem Advisory LLC.