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Understanding Corporate Tax in the UAE: Ultimate Guide
The United Arab Emirates (UAE) has emerged as a preferred location for businesses and investors, partly because of its attractive tax setting. Although corporate income tax is not applied to most companies in the UAE, other taxes like Value Added Tax (VAT) and Excise Tax have been introduced. To top it off, Ministry of Finance recently implemented a decision regarding small business relief for corporate tax purposes. In this blog, Choose UAE investigates the corporate tax landscape in UAE, presenting a detailed overview of the current tax framework.
Corporate Tax in the UAE
Corporate Income Tax
As of now, the UAE does not levy corporate income tax (CIT) on the majority of businesses operating within the country. The exception to this rule applies to foreign oil and gas companies, and branches of foreign banks, which are subject to CIT rates ranging from 20-55% and 20% respectively. These tax rates are generally determined through negotiations and agreements between the companies and the relevant UAE authorities.
Value Added Tax (VAT)
Introduced in January 2018, Value Added Tax (VAT) is a consumption tax applied to goods and services at a standard rate of 5%. VAT registration is mandatory for businesses with an annual taxable turnover exceeding AED 375,000. Those with a taxable turnover between AED 187,500 and AED 375,000 can voluntarily register for VAT. Companies must charge VAT on their taxable supplies and can claim input VAT on eligible expenses.
Excise Tax is levied on specific goods that are considered harmful to human health or the environment. In the UAE, this tax applies to tobacco products, energy drinks, carbonated drinks, and electronic smoking devices. The rates for Excise Tax range from 50% to 100%, depending on the product. Companies that import, produce, or stockpile excise goods are required to register for Excise Tax and submit periodic tax returns.
The UAE does not impose withholding taxes on payments made to non-residents, such as dividends, interest, or royalties. This absence of withholding tax contributes to the UAE’s favorable business environment and encourages foreign investment.
Double Taxation Agreements (DTAs)
To promote international trade and investment, the UAE has entered into numerous Double Taxation Agreements (DTAs) with other countries. These agreements help prevent businesses and individuals from being taxed twice on the same income and provide relief from double taxation. They also encourage the exchange of information between tax authorities, fostering transparency and cooperation.
Economic Substance Regulations (ESR)
Introduced in 2019, the Economic Substance Regulations (ESR) require UAE-based companies engaging in specific activities, such as banking, insurance, intellectual property, shipping, and holding companies, to demonstrate economic substance within the UAE. Companies subject to ESR must submit annual reports to the relevant authority, confirming that they meet the economic substance requirements.
The UAE’s tax environment remains attractive for businesses, with no corporate income tax imposed on most companies, no withholding tax, and numerous Double Taxation Agreements in place. However, it is essential to remain aware of and comply with other tax obligations, such as VAT, Excise Tax, and Economic Substance Regulations.
How Can Choose UAE Help
At Choose UAE, we are committed to making your business journey in the UAE as smooth and hassle-free as possible. One of the essential aspects of operating a business in the UAE is complying with its tax regulations, including registering for Value Added Tax (VAT) if required. Go with Choose UAE.