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UAE business tax: All you need to know

Those who do not have a VAT registration may nevertheless have to pay business tax

The UAE government recently published a new order to execute the nation’s corporate tax code, which will go into force in 2023. Businesses will be required to pay a standard rate of 9% from June 2023 if their taxable profits reach AED 375,000 (USD 102,000).

The Ministry of Finance says that the corporation tax will help the UAE reach its goals for growth and change. The rate is the lowest in the Gulf Cooperation Council (GCC) area.

Here’s what you should know about the new corporate tax:

The business tax will be paid by who?
Companies with net profits greater than AED 375,000 must pay corporate tax. These include free zone entities and businesses based in the UAE.

Exemptions
People who work for government/semi-government agencies and private companies will not be subject to the corporation tax. The new tax won’t apply to individual incomes from bank accounts, savings, and real estate investments.

Wholly-owned and controlled UAE subsidiaries of a government entity, pension and social security funds, and qualifying investment funds will be eligible for exemptions as well.

Existing free zone firms can take advantage of a corporate tax rate of 0% on income.

Activities on the natural resources front won’t come under the new corporate tax code too.

When will the business tax go into effect?
The new tax would go into effect after June 1, 2023. Every business/entity, whose fiscal year runs from July 1, 2023 to June 30, 2024, will be required to pay the new tax.

What about businesses in the UAE owned by GCC or UAE nationals?
Entities that earn more than AED 375,000 per year are subject to the tax. The law applies to any entity, no matter where its founders or owners are from or where they live.

Will entities also have to pay additional taxes?
Some companies may still be subject to both the corporate tax and “Emirate level taxation,” according to the Ministry of Finance. The amount of company tax that must be paid will not be reduced by taxes paid at the emirate level.

Companies involved in the extraction of natural resources are exempt from “Emirate-level taxation.” But “certain conditions” must still be met by these businesses.

Will the business tax replace VAT?
Another kind of tax is the value-added tax (VAT). It will keep being gathered in the UAE. If a company must pay corporate tax and VAT, it must do so separately. Those who do not have a VAT registration may nevertheless have to pay business tax.

What about excise tax?
This is a different kind of tax. The UAE will continue to collect excise duty.

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