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The United Arab Emirates (UAE) has officially started to impose corporate taxes. This is a major shift for a country that is known to be pro-business and tax-free. With the implementation of the Corporate Tax UAE, every company, regardless of its size, needs to reorganize.

This measure is not only an update. It is something that every company needs to understand and, more importantly, comply with. Our objective in this blog is to help you maintain a step ahead in the complexity that is the new tax regime.

What Is Corporate Tax in The UAE?

Beginning June 1, 2023, firms in the UAE are being required to start paying corporate tax. A 9% corporate tax is being applied to businesses earning more than AED 375,000 in taxable income, whereas those earning below AED 375,000 are continuing to be taxed at 0%. Not too shabby, correct?

So, even if you are accustomed to conducting business in the UAE tax-free, it is high time you learnt how the Corporate Tax UAE operates.

Who Has to Register?

Not everyone needs to register, but many do.

You must register if you are:

• A juristic person, meaning a recognized form of company, such as an LLC or corporation, that is established in the UAE 
• A natural person (independent individual) merchant registering a business with more than AED 1 million in annual sales.

That means freelancers, consultants, and small businesses. This could include you. Ignoring it could cost you, literally.

What Are the Deadlines?

Now that you understand deadlines, keep in mind that missing one can incur a penalty. Here’s a quick overview of the most critical deadlines:

• Natural persons (sole proprietors or contractors): If you reach AED 1 million in 2024, you should register by March 31, 2025. If you miss that deadline, expect an AED 10,000 penalty. 
• Companies and other entities: You have room until September 30, 2025, provided you end your year on December 31, 2024.

Filing Your Corporate Tax Return

Although it may look like a big number, unlike other submissions, you only do this once a year. As for the corporate return, plan to have it finalized within nine months after your financial period closes. If your books close in December, expect to file them by September.

Transfer Pricing Regulations For Your Attention

If your business involves related entities or cross-border profit transfers, pay special attention. Transfer Pricing (TP) is part of the Corporate Tax UAE and has rules concerning fairness and transparency.

You will have to file the following:

• A TP Disclosure Form
• Any other documentation that proves your related parties’ transactions are executed at arm’s length.

Even micro-sized businesses ought to be mindful in case they transact with group companies or related entities.

What About Free Zone Companies?

This is encouraging news. If your location is a Free Zone in the UAE, you may still be eligible for the 0% tax rate. However, this is only applicable if your revenue is classified as “qualifying.” You will also need to meet some requirements, such as:

• Engaging in enterprise activities within the Free Zone or globally
• Not deriving revenue from the mainland of the UAE
• Complying with both transfer pricing and economic substance legislation

Keep Your Records Straight

Every business has to keep its financial records for no less than five years. This encompasses invoices, contracts, statements, and anything related to income or deductions. If the FTA requires you to review something, you want to make sure you have it supervised.

Conclusion

The Corporate Tax UAE tax system is set in place permanently. The system is not terrible. However, it does need some of your care. Understanding what is expected from you means very few penalties and more focus on expanding your business.