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Corporate Tax Rates and Calculation Methods

Ministry of Finance introduced corporate tax UAE that aims to reinforce its status as an emerging global hub for corporate and investment sectors. From June 2023, UAE mandates all the companies in the UAE to pay corporate tax UAE. The noteworthy factor is that it applies to businesses that are residents or non-residents in the UAE. So, it is important to know the corporate tax rates and the calculation methods.

What are the corporate tax UAE rates?

Corporate tax UAE applies to all companies depending on some factors such as the threshold for qualifying as a taxable person. The key corporate tax UAE rates are;

ü  9% Standard Corporate Tax Rate

The standard corporate tax UAE rate is 9% for the taxable person if their annual income turnover surpasses AED 375,000 according to the Cabinet Decision No. 55 of 2023. This standard rate is highly modest by global standards. It makes the UAE a striking destination for businesses. The 9% rate maintains an equilibrium between;

  • Generating government revenue
  • Maintaining a favorable business climate

The UAE objects to continuing by keeping the rate relatively low corporate tax for international corporations and investments.

ü  0% Corporate Tax Rate as Exemption

The most significant Corporate Tax Rate in the UAE is 0% tax rate for companies if their taxable income is less than AED 375,000. This threshold is specifically intended to help SMEs and startups. It ensures they can hold more of their earnings to invest and develop their operations. By offering exemptions to smaller businesses from corporate tax, the UAE government aims to enhance innovation and entrepreneurship.

ü  Free Zone Incentives

Free zones play an important role in the UAE’s economic sector. UAE offers momentous tax incentives to the Free Zones. It is important to know that companies working in the free zones can enjoy several benefits from corporate tax exemptions. The Free Zone Incentives include;

  • 100% foreign ownership
  • Full return on profits
  • Import and export duties Exemptions
  • Developed Business Communities
  • Independent Laws and Regulations
  • Modern and Sophisticated Infrastructure

There are more than 40 Free zones in the UAE and each of them has its own explicit regulations and benefits because they contribute to financial development and diversification.

ü  Oil and Gas Companies and Foreign companies

Foreign, Oil and gas companies have factually been subject to corporate tax rates. The important thing to note is that these sectors are subject to paying corporate tax UAE as per agreements. In this case, the corporate tax UAE can be significantly higher than the standard 9% rate. This approach guarantees that these vastly lucrative or profitable companies contribute sufficiently to the UAE’s economic revenue.

What are the corporate tax UAE Calculation Methods?

To calculate corporate tax UAE, there is a straightforward method that includes the following steps;

1. Define the Net Profit

The primary step to calculating corporate tax UAE is to identify the net profit of the company. This determined net profit must be according to the financial statements equipped as per International Financial Reporting Standards or other UAE’s accepted accounting standards. When you define the net profit, it will represent your company’s income after withholding all permissible business expenses.

2. Relevant Deductions and Exemptions

The next step is to determine the relevant deductions and exemptions if you may be eligible. It helps to further diminish your taxable income. These can include;

  • Specific business expenses
  • Depreciation on assets
  • Potential government incentives

Due to complications, it is recommended to get help from top Tax consultant in UAE to make sure you are requesting all valid and relevant deductions and exemptions.

3. Income Below AED 375,000

If your business’s determined net profit is less than AED 375,000, you are subject to a 0% corporate tax UAE rate. This exemption is specifically supported for small and medium businesses or startups.

4. Income Above AED 375,000

If your business’s determined net profit is more than AED 375,000, you are subject to the standard corporate tax UAE rate of 9%. The simple formula is;

Corporate Tax UAE = Taxable Income x 9%

Conclusion

In the UAE, you may face complications in knowing specific corporate tax UAE and the calculation method. It is highly recommended to get help from a Tax consultant in UAE such as Farahat & Co. Their proficient team will help in every aspect of corporate tax UAE as well as corporate tax registration.

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